##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from
 Commission File Number: 0-32041
 
 CITIZENS FIRST BANCORP, INC.
 
 Delaware
    
    38-3573582(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)525 Water Street, Port Huron, Michigan
    
    48060(Address of principal executive offices)
    
    (Zip Code)
   Name of Each Exchange onTitle of Each Class
    
    Which RegisteredCommon Stock, par value
$0.01 per share
    
    NASDAQ Global Select Market
  o þ
 o þ
  þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
   Documents Incorporated by Reference




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##### 



TABLE OF CONTENTS
 INDEX
 PagePart IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    21Item 1B.
    
    Unresolved Staff Comments
    
    
    24Item 2.
    
    Properties
    
    
    24Item 3.
    
    Legal Proceedings
    
    
    24Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    24Part IIItem 5.
    
    Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
    
    
    24Item 6.
    
    Selected Financial Data
    
    
    27Item 7.
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    28Item 7A.
    
    Quantitative and Qualitative Disclosures about
Market Risk
    
    
    45Item 8.
    
    Financial Statements and Supplementary Data
    
    
    47Item 9.
    
    Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
    
    
    79Item 9A.
    
    Controls and Procedures
    
    
    79Item 9B.
    
    Other Information
    
    
    80Part IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    80Item 11.
    
    Executive Compensation
    
    
    80Item 12.
    
    Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
    
    
    81Item 13.
    
    Certain Relationships and Related Transactions, and
Director Independence
    
    
    81Item 14.
    
    Principal Accountant Fees and Services
    
    
    81Part IVItem 15
    
    Exhibits and Financial Statement Schedules
    
    
    82Signatures
    
    
    83Certifications of Chief Executive Officer and Chief Financial OfficerConsent of BDO Seidman, LLPRule 13a-14(a) Certifications of Chief Executive OfficerRule 13a-14(a) Certifications of Chief Financial OfficerSection 1350 Certifications of Chief Executive OfficerSection 1350 Certifications of Chief Financial Officer
    2




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##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
 GENERAL
    GENERAL DEVELOPMENTS DURING MOST RECENT FISCAL YEAR
  3




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MARKET AREA AND COMPETITION
   st rd th rd
   
    
    Improve and maintain a high level of asset quality,
    
    To aggressively manage our collection efforts, our nonperforming and other real estate properties
and align our already conservative lending policies to current and future economic conditions,
    
    To diversify our balance sheet through the presentation of new retail products along with
opportunities for expansion of wholesale loan and deposit products that are favorable to the Bank,
    
    To focus on the deployment of human capital,
    
    To be aware of and review opportunities for expansion of our current branch network,
    
    To strive for continuous improvement of service and operational efficiencies while
eliminating excess operational costs while focusing on optimal customer service, and
    
    To rapidly expand our products and service offering to all segments of our customer base.
 4




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##### Table of Contents



LENDING ACTIVITIES
 General.
 One- to Four-Family Residential Mortgage Loans
    Commercial and Multi-Family Real Estate Loans
  5




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Residential Construction Loans.
   Home Equity and Lines of Credit
  6




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Commercial Loans
    Consumer Loans
  7




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Loan Originations, Purchases and Sales
   Loan Commitments.
 8




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Loan Fees.
  Real Estate Owned.
 Loan Portfolio Analysis.
 At December 31,2007
    
    
    2006
    
    
    2005Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total
    
    
    Amount
    
    
    of TotalReal estate loans:One- to four-family
    
    $
    472,330
    
    
    
    30.68
    %
    
    $
    513,139
    
    
    
    32.13
    %
    
    $
    427,714
    
    
    
    29.71
    %Commercial and multi-family (1)
    
    
    433,375
    
    
    
    28.15
    %
    
    
    432,009
    
    
    
    27.05
    %
    
    
    418,314
    
    
    
    29.05
    %Residential construction
    
    
    103,825
    
    
    
    6.74
    %
    
    
    127,777
    
    
    
    8.00
    %
    
    
    82,328
    
    
    
    5.72
    %Home equity and lines of credit
    
    
    134,994
    
    
    
    8.77
    %
    
    
    137,112
    
    
    
    8.58
    %
    
    
    131,378
    
    
    
    9.12
    %Total real estate loans
    
    
    1,144,524
    
    
    
    74.34
    %
    
    
    1,210,037
    
    
    
    75.76
    %
    
    
    1,059,734
    
    
    
    73.60
    %Commercial loans
    
    
    307,728
    
    
    
    19.99
    %
    
    
    280,005
    
    
    
    17.53
    %
    
    
    271,436
    
    
    
    18.85
    %Consumer loans:Vehicles (2)
    
    
    63,352
    
    
    
    4.12
    %
    
    
    83,435
    
    
    
    5.22
    %
    
    
    84,189
    
    
    
    5.85
    %Other
    
    
    23,876
    
    
    
    1.55
    %
    
    
    23,820
    
    
    
    1.49
    %
    
    
    24,421
    
    
    
    1.70
    %Total consumer loans
    
    
    87,228
    
    
    
    5.67
    %
    
    
    107,255
    
    
    
    6.71
    %
    
    
    108,610
    
    
    
    7.54
    %Total loans
    
    
    1,539,480
    
    
    
    100.00
    %
    
    
    1,597,297
    
    
    
    100.00
    %
    
    
    1,439,780
    
    
    
    100.00
    %Less:Allowance for loan losses
    
    
    21,464
    
    
    
    
    
    
    
    14,304
    
    
    
    
    
    
    
    13,546Net deferred loan fees
    
    
    (75
    )
    
    
    
    
    
    
    582
    
    
    
    
    
    
    
    1,198Net loans
    
    $
    1,518,091
    
    
    
    
    
    
    $
    1,582,411
    
    
    
    
    
    
    $
    1,425,036
 [Additional columns below]
 9




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[Continued from above table, first column(s) repeated]
 At December 31,2004
    
    
    2003Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of TotalReal estate loans:One- to four-family
    
    $
    404,655
    
    
    
    33.50
    %
    
    $
    386,531
    
    
    
    40.99
    %Commercial and multi-family (1)
    
    
    345,936
    
    
    
    28.64
    %
    
    
    241,097
    
    
    
    25.56
    %Residential construction
    
    
    30,917
    
    
    
    2.56
    %
    
    
    24,996
    
    
    
    2.65
    %Home equity and lines of credit
    
    
    113,202
    
    
    
    9.37
    %
    
    
    85,371
    
    
    
    9.05
    %Total real estate loans
    
    
    894,710
    
    
    
    74.08
    %
    
    
    737,995
    
    
    
    78.25
    %Commercial loans
    
    
    222,403
    
    
    
    18.41
    %
    
    
    127,686
    
    
    
    13.54
    %Consumer loans:Vehicles (2)
    
    
    66,463
    
    
    
    5.50
    %
    
    
    59,392
    
    
    
    6.30
    %Other
    
    
    24,184
    
    
    
    2.00
    %
    
    
    18,004
    
    
    
    1.91
    %Total consumer loans
    
    
    90,647
    
    
    
    7.51
    %
    
    
    77,396
    
    
    
    8.21
    %Total loans
    
    
    1,207,760
    
    
    
    100.00
    %
    
    
    943,077
    
    
    
    100.00
    %Less:Allowance for loan losses
    
    
    13,472
    
    
    
    
    
    
    
    11,664Net deferred loan fees
    
    
    2,231
    
    
    
    
    
    
    
    2,212Net loans
    
    $
    1,192,057
    
    
    
    
    
    
    $
    929,201
 
 (1)
    
    Includes commercial construction loans which at December 31, 2007, December 31, 2006,
December 31, 2005, December 31, 2004, and December 31, 2003 totaled $48.1 million, $56.6
million, $57.2 million, $33.1 million, and $14.8 million, respectively.(2)
    
    Includes loans secured by automobiles, motorcycles, campers and other recreational vehicles. INVESTMENT SECURITIES ACTIVITIES
    10




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At December 31,2007
    
    
    2006
    
    
    2005Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    ValueU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    10,777
    
    
    $
    10,796
    
    
    $
    18,318
    
    
    $
    18,129
    
    
    $
    23,379
    
    
    $
    22,980Obligations of state and political subdivisions
    
    
    29,709
    
    
    
    29,766
    
    
    
    32,158
    
    
    
    32,026
    
    
    
    35,506
    
    
    
    35,418Corporate debt securities
    
    
    78,110
    
    
    
    79,202
    
    
    
    4,001
    
    
    
    3,948
    
    
    
    20,584
    
    
    
    20,476Mortgage-backed securities
    
    
    7,528
    
    
    
    7,507
    
    
    
    3,323
    
    
    
    3,271
    
    
    
    4,400
    
    
    
    4,323Total
    
    
    126,124
    
    
    
    127,271
    
    
    
    57,800
    
    
    
    57,374
    
    
    
    83,869
    
    
    
    83,197Equity securities
    
    
    5,002
    
    
    
    3,250
    
    
    
    5,000
    
    
    
    4,775
    
    
    
    5,000
    
    
    
    4,313Total securities available for sale
    
    $
    131,126
    
    
    $
    130,521
    
    
    $
    62,800
    
    
    $
    62,149
    
    
    $
    88,869
    
    
    $
    87,510
  DEPOSIT AND OTHER ACTIVITIES
 Deposit accounts
 11




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At December 31,2007
    
    
    2006
    
    
    2005Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageAmount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    RateNoninterest bearing demand deposits
    
    $
    95,364
    
    
    
    0.00
    %
    
    $
    95,121
    
    
    
    0.00
    %
    
    $
    116,835
    
    
    
    0.00
    %Passbook and savings deposits
    
    
    114,046
    
    
    
    2.11
    
    
    
    111,027
    
    
    
    1.54
    
    
    
    96,198
    
    
    
    0.62Interest bearing demand deposits
    
    
    356,441
    
    
    
    3.15
    
    
    
    364,637
    
    
    
    3.01
    
    
    
    366,746
    
    
    
    2.02Time deposits under $100,000
    
    
    283,256
    
    
    
    4.64
    
    
    
    277,042
    
    
    
    4.28
    
    
    
    233,870
    
    
    
    3.66Time deposits $100,000 and over
    
    
    330,251
    
    
    
    5.03
    
    
    
    292,970
    
    
    
    4.67
    
    
    
    201,708
    
    
    
    3.37Total
    
    $
    1,179,358
    
    
    
    3.68
    %
    
    $
    1,140,797
    
    
    
    3.35
    %
    
    $
    1,015,357
    
    
    
    2.30
    %
 TRUST SERVICES
  PERSONNEL
  12




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SUBSIDIARIES
  REGULATION AND SUPERVISION
 General
  USA Patriot and Bank Secrecy Acts
  Michigan Bank Regulation
   13




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Business Activities.
 Loans to One Borrower.
 Terms
of Loan Products That May Give Rise to a Concentration of Credit Risk
 Dividends.
 Branching Activities.
 Commissioner Assessments.
 Enforcement.
 14




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Federal Regulation
 Capital Requirements.
    Prompt Corrective Regulatory Action.
   Insurance of Deposit Accounts.
 15




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##### Table of Contents



Transactions with Related Parties.
  Standards for Safety and Soundness.
 Investment Activities.
 Mergers .
 Federal Statutory and Regulatory Provisions.
 Interstate Branching.
 16




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##### Table of Contents



Federal Enforcement.
 Federal Home Loan Bank System
  Federal Reserve System
  Holding Company Regulation
    17




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##### Table of Contents



(1)
    
    the approval of interstate supervisory acquisitions by savings and loan holding companies and(2)
    
    the acquisition of a savings institution in another state if the laws of the state of the
target savings institution specifically permit such acquisitions. The states vary in the
extent to which they permit interstate savings and loan holding company acquisitions.
  QTL Test.
 Change in Bank Control Act.
  Federal Securities Laws
  FEDERAL AND STATE TAXATION
 General.
 Bad Debt Reserves.
 18




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Distributions.
  19




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##### Table of Contents



State Taxation
  Michigan State Taxation.
 
    
    An MBT Surcharge was added at the rate of 27.7 percent for tax years ending in 2008,
and 23.4 percent for tax years ending 2009 and later, there is no limit or cap on the
surcharge for financial institutions; financial institutions authorized to exercise only
trust powers are not subject to the surcharge.
    
    All goodwill may be subtracted from the MBT base of a financial institution;
previously, only goodwill incurred due to transactions after July 1, 2007 was eligible
for deduction from the base.
    
    The deduction from the MBT base for U.S. and Michigan obligations was changed to one
based on an average daily balance of the asset instead of book value at year end.
    
    Financial institutions are now eligible to take the MBT compensation credit; for 2008,
this credit is computed as .296 percent of the taxpayers compensation in Michigan,
subject to limitation; for later years, the rate goes to .30 percent.
    
    On December 27, 2007, HB5125 was signed into law by Gov. Granholm. Under this act,
financial institutions now qualify for the MBT renaissance zone credit.
 Delaware State Taxation.
 FINANCIAL STATEMENTS
  ADDITIONAL INFORMATION
  
 20




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ITEM 1A. RISK FACTORS
 Significant Competition from an Array of Financial Service Providers
  Economic Downturn
  
    
    Loan delinquencies may increase;
    
    Problem assets and foreclosures may increase;
    
    Demand for the products and services of the Company may decline; and
    
    Collateral (including real estate) for loans made by the Company may decline in value,
in turn reducing customers borrowing power, and making existing loans less secure.
  General Credit Risk and Nonperforming Loans
  Potential Problem Loans.
 Allowance for Loan Losses
 Environmental Risks
  21




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Susceptibility to Changes in Regulation
  Interest Rate Risk
  Critical Accounting Policies
  Attraction and Retention of Key Personnel
  Dividend Payout Restrictions
  Anti-Takeover Provisions
  22




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Operational Risks
  Information Systems
  Technological Advances
  Severe Weather, Natural Disasters, Acts of War or Terrorism and Other External Events
  Trading Volume Risks
  Our Common Stock Is Not An Insured Deposit
  23




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##### Table of Contents



ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
  
    
    Companys use of the word Citizens in its Oakland County operations will become
restricted on July 22, 2008, and will be prohibited in Oakland County on and after
October 14, 2008.
    
    All claims for trademark infringement which CBC asserted, or which CBC could have
asserted, against Company in this case with respect to Companys use of the name
Citizens in the Michigan counties of Macomb, Lapeer, St. Clair, Sanilac and Huron will
be dismissed with prejudice.
    
    CBC was not awarded damages, attorney fees, or costs.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER                 PURCHASES OF
EQUITY SECURITIES
  24




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Year Ended December 31, 20074th Quarter
    
    3rd Quarter
    
    2nd Quarter
    
    1st QuarterHigh
    
    $
    20.13
    
    
    $
    22.38
    
    
    $
    24.07
    
    
    $
    31.14Low
    
    $
    12.00
    
    
    $
    16.01
    
    
    $
    20.30
    
    
    $
    22.00Dividends Paid
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
 Year Ended December 31, 20064th Quarter
    
    3rd Quarter
    
    2nd Quarter
    
    1st QuarterHigh
    
    $
    31.64
    
    
    $
    28.75
    
    
    $
    32.43
    
    
    $
    29.70Low
    
    $
    25.04
    
    
    $
    22.58
    
    
    $
    26.71
    
    
    $
    23.03Dividends Paid
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
    Total Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares that May YetTotal Number of
    
    
    Average Price Paid
    
    
    Part of Publicly
    
    
    Be Purchased UnderPeriod
    
    Shares Purchased
    
    
    per Share
    
    
    Announced Programs
    
    
    the Program10/1/2007 to 10/31/2007
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    411,19811/1/2007 to 11/30/2007
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    411,19812/1/2007 to 12/31/2007
    
    
    193,100
    
    
    $
    13.80
    
    
    
    193,100
    
    
    
    218,098Totals
    
    
    193,100
    
    
    $
    13.80
    
    
    
    193,100
    
    
    
    218,098
 25




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PERFORMANCE GRAPH
 
  
 26




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
 DECEMBER 31,2007
    
    2006
    
    2005
    
    2004 (1)
    
    2003(Dollars in thousands)SELECTED CONSOLIDATED FINANCIAL DATA:Total assets
    
    $
    1,804,404
    
    
    $
    1,775,142
    
    
    $
    1,654,223
    
    
    $
    1,393,364
    
    
    $
    1,094,260Cash and cash equivalents
    
    
    20,464
    
    
    
    24,823
    
    
    
    47,591
    
    
    
    27,937
    
    
    
    33,647Securities available for sale
    
    
    130,521
    
    
    
    62,149
    
    
    
    87,510
    
    
    
    93,839
    
    
    
    79,672Loans, net
    
    
    1,518,091
    
    
    
    1,582,411
    
    
    
    1,425,036
    
    
    
    1,192,057
    
    
    
    929,201Deposits
    
    
    1,198,066
    
    
    
    1,186,658
    
    
    
    1,072,195
    
    
    
    933,104
    
    
    
    748,531FHLB advances
    
    
    384,541
    
    
    
    348,914
    
    
    
    346,500
    
    
    
    232,209
    
    
    
    172,534Stockholders equity
    
    
    170,203
    
    
    
    177,314
    
    
    
    168,570
    
    
    
    162,894
    
    
    
    158,187Real estate and other assets owned
    
    
    11,190
    
    
    
    3,253
    
    
    
    1,471
    
    
    
    1,032
    
    
    
    443Total nonperforming assets
    
    
    65,326
    
    
    
    28,920
    
    
    
    22,845
    
    
    
    11,663
    
    
    
    4,358YEARENDEDDECEMBER 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Total interest income
    
    $
    117,112
    
    
    $
    113,271
    
    
    $
    89,089
    
    
    $
    69,443
    
    
    $
    60,304Total interest expense
    
    
    64,570
    
    
    
    58,440
    
    
    
    38,092
    
    
    
    25,627
    
    
    
    23,307Net interest income
    
    
    52,542
    
    
    
    54,831
    
    
    
    50,997
    
    
    
    43,816
    
    
    
    36,997Provision for loan losses
    
    
    12,342
    
    
    
    2,805
    
    
    
    2,390
    
    
    
    1,555
    
    
    
    1,440Net interest income after provision for loan losses
    
    
    40,200
    
    
    
    52,026
    
    
    
    48,607
    
    
    
    42,261
    
    
    
    35,557Noninterest income
    
    
    7,160
    
    
    
    6,010
    
    
    
    6,378
    
    
    
    5,425
    
    
    
    10,429Noninterest expense
    
    
    45,242
    
    
    
    44,430
    
    
    
    41,673
    
    
    
    35,257
    
    
    
    27,410Income before income taxes
    
    
    2,118
    
    
    
    13,606
    
    
    
    13,312
    
    
    
    12,429
    
    
    
    18,576Income taxes
    
    
    248
    
    
    
    4,504
    
    
    
    4,278
    
    
    
    4,200
    
    
    
    6,255Net income
    
    $
    1,870
    
    
    $
    9,102
    
    
    $
    9,034
    
    
    $
    8,229
    
    
    $
    12,321Earnings per share, basic
    
    
    0.24
    
    
    
    1.14
    
    
    
    1.14
    
    
    
    1.04
    
    
    
    1.58Dividends per share
    
    
    0.36
    
    
    
    0.36
    
    
    
    0.36
    
    
    
    0.36
    
    
    
    0.34YEARENDEDDECEMBER 31,2007
    
    2006
    
    2005
    
    2004
    
    2003PERFORMANCE RATIOS:Average yield on interest-earning assets
    
    
    6.92
    %
    
    
    6.89
    %
    
    
    6.15
    %
    
    
    5.64
    %
    
    
    6.08
    %Average rate paid on interest-bearing liabilities
    
    
    4.28
    
    
    
    4.03
    
    
    
    3.09
    
    
    
    2.46
    
    
    
    2.78Average interest rate spread
    
    
    2.64
    
    
    
    2.86
    
    
    
    3.06
    
    
    
    3.18
    
    
    
    3.30Net interest margin
    
    
    3.10
    
    
    
    3.34
    
    
    
    3.52
    
    
    
    3.56
    
    
    
    3.73Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    112.25
    
    
    
    113.42
    
    
    
    117.45
    
    
    
    118.31
    
    
    
    118.32Net interest income after provision
for loan losses to noninterest expense
    
    
    88.86
    
    
    
    117.10
    
    
    
    116.64
    
    
    
    119.87
    
    
    
    129.72Noninterest expense as a percent of average assets
    
    
    2.52
    
    
    
    2.57
    
    
    
    2.73
    
    
    
    2.67
    
    
    
    2.57Return on average assets
    
    
    0.10
    
    
    
    0.53
    
    
    
    0.59
    
    
    
    0.62
    
    
    
    1.16Return on average equity
    
    
    1.05
    
    
    
    5.30
    
    
    
    5.44
    
    
    
    5.13
    
    
    
    8.06Ratio of average equity to average assets
    
    
    9.90
    
    
    
    9.93
    
    
    
    10.87
    
    
    
    12.15
    
    
    
    14.35Dividend payout ratio
    
    
    161.28
    
    
    
    33.32
    
    
    
    33.75
    
    
    
    37.24
    
    
    
    23.17
 27




---



##### Table of Contents



AT OR FOR THE YEAR ENDEDDECEMBER 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Leverage capital ratio
    
    
    7.8
    %
    
    
    8.4
    %
    
    
    8.4
    %
    
    
    9.7
    %
    
    
    11.8
    %Total risk-based capital ratio
    
    
    10.5
    
    
    
    10.6
    
    
    
    10.6
    
    
    
    12.8
    
    
    
    15.8ASSET QUALITY RATIOS:Nonperforming loans as a percent of total loans
    
    
    3.52
    
    
    
    1.61
    
    
    
    1.48
    
    
    
    0.88
    
    
    
    0.42Nonperforming assets as a percent of total assets
    
    
    3.62
    
    
    
    1.63
    
    
    
    1.38
    
    
    
    0.84
    
    
    
    0.40Allowance for loan losses as a percent
of total loans
    
    
    1.39
    
    
    
    0.90
    
    
    
    0.94
    
    
    
    1.12
    
    
    
    1.24Allowance for loan losses as a percent ofnonperforming loans
    
    
    39.6
    
    
    
    55.7
    
    
    
    63.4
    
    
    
    126.7
    
    
    
    297.9Net loans charged-off to average loans
    
    
    0.33
    
    
    
    0.13
    
    
    
    0.18
    
    
    
    0.08
    
    
    
    0.10OTHERFull service banking centers and loan production offices at end of period
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    20
    
    
    
    16
 
 (1)
    
    The data for the years ended December 31, 2004 and thereafter includes the Metrobank
acquisition. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 GENERAL.
 OVERVIEW
     CRITICAL ACCOUNTING POLICIES
  28




---



##### Table of Contents



Potential Significant Impact on Financial Statements and Condition
   29




---



##### Table of Contents



COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2007 AND 2006
  
    
    a $7.1 million, or 50.1%, increase in allowance for loan loss,
    
    a $24.7 million, or 87.5%, increase in accrued interest
receivable and other assets which includes a $15.3 million purchase
of bank-owned life insurance,
    
    a $2.7 million, or 13.7%, increase in Federal Home Loan Bank (FHLB) stock, due to
increased borrowings from the FHLB which, in turn, required an increased investment in FHLB
stock and
    
    a $68.4 million, or 110%, increase in securities.
   
    
    a $40.8 million, or 8.0%, decrease in one-to four-family loans to $472.3 million and
    
    a $24.0 million, or 18.7%, decrease in construction loans to $103.8 million.
  30




---



##### Table of Contents




    
    a $11.4 million, or 0.96%, increase in deposits from
$1.187 billion at December 31, 2006
to $1.198 billion at December 31, 2007 and
    
    a net increase of $27.1 million, or 6.8%, in total net borrowings.
   
    
    a $53.8 million, or 8.5%, increase in certificates of deposit and,
    
    was partially offset by a decrease in non-interest bearing deposits of $5.9 million, or
6.1%,
    
    a decrease of NOW deposits of $10.2 million, or 11.1% and
    
    a decrease of money market deposits of $27.7 million, or 11.1%.
    31




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##### Table of Contents



At December 31,2007
    
    
    2006
    
    
    2005 (2)
    
    
    2004 (1)
    
    
    2003Nonperforming loans:Real estate
    
    $
    29,854
    
    
    $
    13,400
    
    
    $
    8,467
    
    
    $
    5,745
    
    
    $
    3,268Commercial
    
    
    22,401
    
    
    
    10,974
    
    
    
    12,094
    
    
    
    3,343
    
    
    
    195Consumer
    
    
    1,881
    
    
    
    1,293
    
    
    
    813
    
    
    
    1,543
    
    
    
    452Total
    
    
    54,136
    
    
    
    25,667
    
    
    
    21,374
    
    
    
    10,631
    
    
    
    3,915Real estate and other assets owned
    
    
    11,190
    
    
    
    3,253
    
    
    
    1,471
    
    
    
    1,032
    
    
    
    443Total nonperforming assets
    
    $
    65,326
    
    
    $
    28,920
    
    
    $
    22,845
    
    
    $
    11,663
    
    
    $
    4,358Total nonperforming loans as a
percentage of total loans
    
    
    3.52
    %
    
    
    1.61
    %
    
    
    1.48
    %
    
    
    0.88
    %
    
    
    0.42
    %Total nonperforming loans as a
percentage of total assets
    
    
    3.00
    %
    
    
    1.45
    %
    
    
    1.29
    %
    
    
    0.76
    %
    
    
    0.36
    %
 
 (1)
    
    The increase at December 31, 2004 from 2003 reflects the change in policy for
nonperforming loans to be classified as performing as discussed in our Form 10-K filing for
the fiscal year ended December 31, 2004.(2)
    
    The increase at December 31, 2005 in the Commercial Loan Portfolio reflects certain
commercial loan relationships that were previously classified as watch credits by
management at December 31, 2004. These loan relationships have either deteriorated or have
been placed under forbearance agreements by management. The Company believes that the
collateral attached to these relationships is adequate or that specific reserves have been
allocated to cover any potential impairment.  At December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Real estate loans:One- to four-family
    
    
    142
    
    
    
    
    
    
    
    
    
    
    $
    265
    
    
    $
    2,506Commercial and multi-family
    
    
    3,845
    
    
    
    
    
    
    
    
    
    
    
    728
    
    
    
    149Residential construction
    
    
    1,027
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    762Home equity and
lines of credit
    
    
    370
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84Commercial loans
    
    $
    1,443
    
    
    $
    1,473
    
    
    $
    1,455
    
    
    
    2,948
    
    
    
    86Consumer loans
    
    
    54
    
    
    
    27
    
    
    
    4
    
    
    
    
    
    
    
    328Total
    
    $
    6,881
    
    
    $
    1,500
    
    
    $
    1,459
    
    
    $
    3,941
    
    
    $
    3,915Accruing loans 90 days
past due to total loans
    
    
    0.45
    %
    
    
    0.09
    %
    
    
    0.10
    %
    
    
    0.33
    %
    
    
    0.42
    %
   32




---



##### Table of Contents



Year EndedDecember 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Allowance for loan losses, beginning of period
    
    $
    14,304
    
    
    $
    13,546
    
    
    $
    13,472
    
    
    $
    11,664
    
    
    $
    11,082Acquired in acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,135
    
    
    
    Charged-off loans:Real estate
    
    
    (2,508
    )
    
    
    (187
    )
    
    
    (367
    )
    
    
    (132
    )
    
    
    (15
    )Commercial
    
    
    (1,638
    )
    
    
    (687
    )
    
    
    (369
    )
    
    
    (270
    )
    
    
    (325
    )Consumer
    
    
    (1,740
    )
    
    
    (1,478
    )
    
    
    (1,873
    )
    
    
    (1,057
    )
    
    
    (755
    )Total charged-off loans
    
    
    (5,886
    )
    
    
    (2,352
    )
    
    
    (2,609
    )
    
    
    (1,459
    )
    
    
    (1,095
    )Recoveries on loans previously charged-off:Real estate
    
    
    65
    
    
    
    32
    
    
    
    20
    
    
    
    138
    
    
    
    Commercial
    
    
    219
    
    
    
    4
    
    
    
    
    
    
    
    167
    
    
    
    83Consumer
    
    
    420
    
    
    
    269
    
    
    
    273
    
    
    
    272
    
    
    
    154Total recoveries
    
    
    704
    
    
    
    305
    
    
    
    293
    
    
    
    577
    
    
    
    237Net loans charged-off
    
    
    (5,182
    )
    
    
    (2,047
    )
    
    
    (2,316
    )
    
    
    (882
    )
    
    
    (858
    )Provision for loan losses
    
    
    12,342
    
    
    
    2,805
    
    
    
    2,390
    
    
    
    1,555
    
    
    
    1,440Allowance for loan losses, end of
period
    
    $
    21,464
    
    
    $
    14,304
    
    
    $
    13,546
    
    
    $
    13,472
    
    
    $
    11,664Net loans charged-off to average
interest-earning loans
    
    
    0.33
    %
    
    
    0.13
    %
    
    
    0.18
    %
    
    
    0.08
    %
    
    
    0.10
    %Allowance for loan losses to total loans
    
    
    1.39
    %
    
    
    0.90
    %
    
    
    0.94
    %
    
    
    1.12
    %
    
    
    1.24
    %Allowance for loan losses to nonperforming loans
    
    
    40
    %
    
    
    56
    %
    
    
    63
    %
    
    
    127
    %
    
    
    298
    %Net loans charged-off to allowance for loan losses
    
    
    24.14
    %
    
    
    14.31
    %
    
    
    17.10
    %
    
    
    6.55
    %
    
    
    7.36
    %Recoveries to charged-off loans
    
    
    11.96
    %
    
    
    12.97
    %
    
    
    11.23
    %
    
    
    39.55
    %
    
    
    21.64
    %
  33




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##### Table of Contents



At December 31,2007
    
    
    2006
    
    
    2005% of
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    % ofAllowance
    
    
    Loans
    
    
    
    
    
    
    Allowance
    
    
    Loans
    
    
    
    
    
    
    Allowance
    
    
    Loansin each
    
    
    in each
    
    
    
    
    
    
    in each
    
    
    in each
    
    
    
    
    
    
    in each
    
    
    in eachCategory
    
    
    Category
    
    
    
    
    
    
    Category
    
    
    Category
    
    
    
    
    
    
    Category
    
    
    Categoryto Total
    
    
    to Total
    
    
    
    
    
    
    to Total
    
    
    to Total
    
    
    
    
    
    
    to Total
    
    
    to TotalAmount
    
    
    Loans
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    LoansReal estate
    
    $
    13,338
    
    
    
    0.87
    %
    
    
    74.34
    %
    
    $
    6,697
    
    
    
    0.42
    %
    
    
    75.76
    %
    
    $
    5,952
    
    
    
    0.41
    %
    
    
    73.60
    %Commercial
    
    
    4,331
    
    
    
    0.28
    %
    
    
    19.99
    %
    
    
    2,955
    
    
    
    0.19
    %
    
    
    17.53
    %
    
    
    2,855
    
    
    
    0.20
    %
    
    
    18.85
    %Consumer
    
    
    3,785
    
    
    
    0.25
    %
    
    
    5.67
    %
    
    
    4,396
    
    
    
    0.28
    %
    
    
    6.71
    %
    
    
    4,536
    
    
    
    0.32
    %
    
    
    7.54
    %Unallocated
    
    
    10
    
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    256
    
    
    
    0.02
    %
    
    
    0.00
    %
    
    
    203
    
    
    
    0.01
    %
    
    
    0.00
    %Total allowance
for loan losses
    
    $
    21,464
    
    
    
    1.39
    %
    
    
    100.00
    %
    
    $
    14,304
    
    
    
    0.90
    %
    
    
    100.00
    %
    
    $
    13,546
    
    
    
    0.94
    %
    
    
    100.00
    %
 [Continued from above table, first column(s) repeated]
 At December 31,2004
    
    
    2003% of
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    % ofAllowance
    
    
    Loans
    
    
    
    
    
    
    Allowance
    
    
    Loansin each
    
    
    in each
    
    
    
    
    
    
    in each
    
    
    in eachCategory
    
    
    Category
    
    
    
    
    
    
    Category
    
    
    Categoryto Total
    
    
    to Total
    
    
    
    
    
    
    to Total
    
    
    to TotalAmount
    
    
    Loans
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    LoansReal estate
    
    $
    6,270
    
    
    
    0.52
    %
    
    
    74.08
    %
    
    $
    5,493
    
    
    
    0.58
    %
    
    
    78.25
    %Commercial
    
    
    2,983
    
    
    
    0.25
    %
    
    
    18.41
    %
    
    
    1,922
    
    
    
    0.20
    %
    
    
    13.54
    %Consumer
    
    
    3,689
    
    
    
    0.31
    %
    
    
    7.51
    %
    
    
    3,527
    
    
    
    0.37
    %
    
    
    8.21
    %Unallocated
    
    
    530
    
    
    
    0.04
    %
    
    
    0.00
    %
    
    
    722
    
    
    
    0.08
    %
    
    
    0.00
    %Total allowance
for loan losses
    
    $
    13,472
    
    
    
    1.12
    %
    
    
    100.00
    %
    
    $
    11,664
    
    
    
    1.24
    %
    
    
    100.00
    %
    34




---



##### Table of Contents



Year Ended December 31,2007
    
    
    2006
    
    
    2005Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateINTEREST EARNING ASSETS:Loans (1)
    
    $
    1,584,317
    
    
    $
    111,795
    
    
    
    7.06
    %
    
    $
    1,542,079
    
    
    $
    108,833
    
    
    
    7.06
    %
    
    $
    1,317,897
    
    
    $
    83,895
    
    
    
    6.37
    %Certificates of Deposits
    
    
    287
    
    
    
    15
    
    
    
    5.23
    
    
    
    20
    
    
    
    2
    
    
    
    5.00
    
    
    
    
    
    
    
    
    
    
    
    Investment securities (2)
    
    
    85,468
    
    
    
    4,256
    
    
    
    4.98
    
    
    
    79,644
    
    
    
    3,420
    
    
    
    4.29
    
    
    
    93,144
    
    
    
    4,287
    
    
    
    4.60FHLB Stock
    
    
    20,521
    
    
    
    920
    
    
    
    4.48
    
    
    
    19,241
    
    
    
    892
    
    
    
    4.64
    
    
    
    16,640
    
    
    
    662
    
    
    
    3.98Federal funds sold
    
    
    2,860
    
    
    
    121
    
    
    
    4.23
    
    
    
    1,952
    
    
    
    91
    
    
    
    4.66
    
    
    
    1,727
    
    
    
    60
    
    
    
    3.47Interest earning deposits
    
    
    114
    
    
    
    5
    
    
    
    4.39
    
    
    
    1,025
    
    
    
    33
    
    
    
    3.22
    
    
    
    18,125
    
    
    
    185
    
    
    
    1.02Total interest earning assets
    
    
    1,693,567
    
    
    
    117,112
    
    
    
    6.92
    
    
    
    1,643,961
    
    
    
    113,271
    
    
    
    6.89
    
    
    
    1,447,533
    
    
    
    89,089
    
    
    
    6.15Noninterest earning assets
    
    
    102,284
    
    
    
    
    
    
    
    
    
    
    
    87,805
    
    
    
    
    
    
    
    
    
    
    
    79,282Total assets
    
    $
    1,795,851
    
    
    
    
    
    
    
    
    
    
    $
    1,731,766
    
    
    
    
    
    
    
    
    
    
    $
    1,526,815INTEREST BEARING LIABILITIES:Deposits:Savings
    
    $
    114,046
    
    
    $
    2,405
    
    
    
    2.11
    %
    
    $
    111,027
    
    
    $
    1,708
    
    
    
    1.54
    %
    
    $
    96,198
    
    
    $
    597
    
    
    
    0.62
    %NOW
    
    
    83,182
    
    
    
    665
    
    
    
    0.80
    
    
    
    88,101
    
    
    
    604
    
    
    
    0.69
    
    
    
    94,693
    
    
    
    896
    
    
    
    0.95Money market
    
    
    273,259
    
    
    
    10,555
    
    
    
    3.86
    
    
    
    276,536
    
    
    
    10,352
    
    
    
    3.74
    
    
    
    272,053
    
    
    
    6,503
    
    
    
    2.39Certificates of deposit
    
    
    613,507
    
    
    
    29,767
    
    
    
    4.85
    
    
    
    570,012
    
    
    
    25,900
    
    
    
    4.54
    
    
    
    435,578
    
    
    
    15,186
    
    
    
    3.49Total interest bearing deposits
    
    
    1,083,994
    
    
    
    43,392
    
    
    
    4.00
    
    
    
    1,045,676
    
    
    
    38,564
    
    
    
    3.69
    
    
    
    898,522
    
    
    
    23,182
    
    
    
    2.58Short-term borrowings
    
    
    33,772
    
    
    
    1,901
    
    
    
    5.63
    
    
    
    64,404
    
    
    
    3,447
    
    
    
    5.35
    
    
    
    49,474
    
    
    
    2,007
    
    
    
    4.06FHLB advances
    
    
    390,926
    
    
    
    19,277
    
    
    
    4.93
    
    
    
    339,320
    
    
    
    16,429
    
    
    
    4.84
    
    
    
    284,449
    
    
    
    12,903
    
    
    
    4.54Total interest bearing liabilities
    
    
    1,508,692
    
    
    
    64,570
    
    
    
    4.28
    
    
    
    1,449,400
    
    
    
    58,440
    
    
    
    4.03
    
    
    
    1,232,445
    
    
    
    38,092
    
    
    
    3.09Noninterest bearing deposits
    
    
    95,364
    
    
    
    
    
    
    
    
    
    
    
    95,121
    
    
    
    
    
    
    
    
    
    
    
    116,835Other noninterest bearing
liabilities
    
    
    13,949
    
    
    
    
    
    
    
    
    
    
    
    15,353
    
    
    
    
    
    
    
    
    
    
    
    11,536Total liabilities
    
    
    1,618,005
    
    
    
    
    
    
    
    
    
    
    
    1,559,874
    
    
    
    
    
    
    
    
    
    
    
    1,360,816Equity
    
    
    177,846
    
    
    
    
    
    
    
    
    
    
    
    171,892
    
    
    
    
    
    
    
    
    
    
    
    165,999Total liabilities and equity
    
    $
    1,795,851
    
    
    
    
    
    
    
    
    
    
    $
    1,731,766
    
    
    
    
    
    
    
    
    
    
    $
    1,526,815Net interest-earning assets
    
    $
    184,875
    
    
    
    
    
    
    
    
    
    
    $
    194,561
    
    
    
    
    
    
    
    
    
    
    $
    215,088Net interest income
    
    
    
    
    
    $
    52,542
    
    
    
    
    
    
    
    
    
    
    $
    54,831
    
    
    
    
    
    
    
    
    
    
    $
    50,997Interest rate spread (3)
    
    
    
    
    
    
    
    
    
    
    2.64
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    3.06
    %Net interest margin as a percentage
of interest-earning assets (4)
    
    
    
    
    
    
    
    
    
    
    3.10
    %
    
    
    
    
    
    
    
    
    
    
    3.34
    %
    
    
    
    
    
    
    
    
    
    
    3.52
    %Ratio of interest-earning assets
to interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    112.25
    %
    
    
    
    
    
    
    
    
    
    
    113.42
    %
    
    
    
    
    
    
    
    
    
    
    117.45
    %
 
 (1)
    
    Balances are net of deferred loan origination fees, undisbursed proceeds of
construction loans in process, and include nonperforming loans.(2)
    
    Securities available for sale are not on a tax equivalent basis.(3)
    
    Net interest rate spread represents the difference between the weighted average yield
on interest-earning assets and the weighted average cost of interest-bearing liabilities.(4)
    
    Net interest margin represents net interest income as a percentage of average
interest-earning assets. 35




---



##### Table of Contents



Year Ended December 31, 2007
    
    
    Year Ended December 31, 2006Compared to
    
    
    
    
    
    
    
    
    
    
    Compared toYear Ended December 31, 2006
    
    
    Year Ended December 31, 2005Increase (Decrease) Due to
    
    
    Increase (Decrease) Due toVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    NetINTEREST EARNING ASSETS:Loans
    
    $
    2,982
    
    
    $
    (20
    )
    
    $
    2,962
    
    
    $
    14,280
    
    
    $
    10,658
    
    
    $
    24,938Certificates of Deposits
    
    
    
    
    
    
    13
    
    
    
    13
    
    
    
    2
    
    
    
    
    
    
    
    2Investment securities
    
    
    250
    
    
    
    586
    
    
    
    836
    
    
    
    (621
    )
    
    
    (246
    )
    
    
    (867
    )FHLB stock
    
    
    59
    
    
    
    (31
    )
    
    
    28
    
    
    
    103
    
    
    
    127
    
    
    
    230Federal funds sold
    
    
    42
    
    
    
    (12
    )
    
    
    30
    
    
    
    8
    
    
    
    23
    
    
    
    31Interest earning deposits
    
    
    (29
    )
    
    
    1
    
    
    
    (28
    )
    
    
    (175
    )
    
    
    23
    
    
    
    (152
    )Total interest earning assets
    
    
    3,304
    
    
    
    537
    
    
    
    3,841
    
    
    
    13,598
    
    
    
    10,584
    
    
    
    24,182INTEREST BEARING LIABILITIES:Deposits:Savings
    
    $
    46
    
    
    $
    651
    
    
    $
    697
    
    
    $
    92
    
    
    $
    1,019
    
    
    $
    1,111NOW
    
    
    (34
    )
    
    
    95
    
    
    
    61
    
    
    
    (62
    )
    
    
    (230
    )
    
    
    (292
    )Money market
    
    
    (123
    )
    
    
    326
    
    
    
    203
    
    
    
    107
    
    
    
    3,742
    
    
    
    3,849Certificates of deposit
    
    
    1,976
    
    
    
    1,891
    
    
    
    3,867
    
    
    
    4,687
    
    
    
    6,027
    
    
    
    10,714Total interest bearing deposits
    
    
    1,866
    
    
    
    2,962
    
    
    
    4,828
    
    
    
    4,824
    
    
    
    10,558
    
    
    
    15,382Short-term borrowings
    
    
    (1,639
    )
    
    
    93
    
    
    
    (1,546
    )
    
    
    606
    
    
    
    834
    
    
    
    1,440FHLB advances
    
    
    2,499
    
    
    
    349
    
    
    
    2,848
    
    
    
    2,489
    
    
    
    1,037
    
    
    
    3,526Total interest bearing liabilities
    
    
    2,726
    
    
    
    3,404
    
    
    
    6,130
    
    
    
    7,918
    
    
    
    12,430
    
    
    
    20,348Increase (decrease) in net
interest income
    
    $
    579
    
    
    $
    (2,868
    )
    
    $
    (2,289
    )
    
    $
    5,679
    
    
    $
    (1,845
    )
    
    $
    3,834
 COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED 2007 AND 2006
    36




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37




---



##### Table of Contents



DelinquentPortfolio
    
    
    Loans
    
    
    NonaccrualBalance
    
    
    over 30 days
    
    
    LoansReal estate loans:One-to four-family
    
    $
    472,330
    
    
    
    25,532
    
    
    
    13,160Commercial and multi-family
    
    
    433,375
    
    
    
    9,243
    
    
    
    9,732Residential construction
    
    
    103,825
    
    
    
    8,930
    
    
    
    16,694Home equity and lines of credit
    
    
    134,994
    
    
    
    4,046
    
    
    
    1,6281,144,524
    
    
    
    47,751
    
    
    
    41,214Commercial loans
    
    
    307,728
    
    
    
    9,897
    
    
    
    12,669Consumer loans:Vehicles
    
    
    63,352
    
    
    
    2,964
    
    
    
    216Other
    
    
    23,876
    
    
    
    713
    
    
    
    3787,228
    
    
    
    3,677
    
    
    
    253Total loans
    
    
    1,539,480
    
    
    
    61,325
    
    
    
    54,136
 
 DelinquentPortfolio
    
    
    Loans
    
    
    NonaccrualBalance
    
    
    over 30 days
    
    
    LoansReal estate loans:One-to four-family
    
    $
    513,139
    
    
    
    35,861
    
    
    
    7,325Commercial and multi-family
    
    
    432,009
    
    
    
    18,962
    
    
    
    7,575Residential construction
    
    
    127,777
    
    
    
    19,232
    
    
    
    6,075Home equity and lines of credit
    
    
    137,112
    
    
    
    2,462
    
    
    
    5551,210,037
    
    
    
    76,517
    
    
    
    21,530Commercial loans
    
    
    280,005
    
    
    
    20,752
    
    
    
    3,399Consumer loans:Vehicles
    
    
    83,435
    
    
    
    3,847
    
    
    
    497Other
    
    
    23,820
    
    
    
    565
    
    
    
    241107,255
    
    
    
    4,412
    
    
    
    738Total loans
    
    
    1,597,297
    
    
    
    101,681
    
    
    
    25,667
   38




---



##### Table of Contents



COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED 2006 AND 2005
      39




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
   40




---



##### Table of Contents




    
    To originate mortgages and other new loans;
    
    To fund withdrawals of deposits and to pay interest on deposits;
    
    To fund takedowns on loan commitments and letters of credit;
    
    To invest in securities, including FHLB stock;
    
    To pay principal and interest on its borrowings;
    
    To fund any capital expenditures which, for the upcoming fiscal year, are expected to
include renovation of the interiors of the certain branch offices and enhancements to our
information technology systems;
    
    To fund any acquisitions if the opportunity arises;
    
    To pay dividends to its shareholders and
    
    To fund repurchases of the Companys stock pursuant to common stock repurchase plans
approved by the Companys Board of Directors.
  Payments Due by PeriodLess than
    
    
    1 to 3
    
    
    4 to 5
    
    
    After 5Contractual Obligations
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalDeposits without a stated maturity (1)
    
    $
    510,645
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    510,645Time deposits (2)
    
    
    422,985
    
    
    $
    65,334
    
    
    $
    58,771
    
    
    $
    140,331
    
    
    
    687,421FHLB advances (3)
    
    
    172,312
    
    
    
    163,475
    
    
    
    32,587
    
    
    
    16,167
    
    
    
    384,541Short-term borrowings
    
    
    42,564
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,564ESOP loan
    
    
    597
    
    
    
    1,351
    
    
    
    1,591
    
    
    
    4,072
    
    
    
    7,611Purchase obligations (4)
    
    
    597
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    597Noncancelable leases
    
    
    1,056
    
    
    
    1,891
    
    
    
    1,349
    
    
    
    1,648
    
    
    
    5,944Total
    
    $
    1,150,756
    
    
    $
    232,051
    
    
    $
    94,298
    
    
    $
    162,218
    
    
    $
    1,639,323
 Expiration by PeriodLess than
    
    
    1 to 3
    
    
    4 to 5
    
    
    After 5Other Commitments
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLetters of credit
    
    $
    16,706
    
    
    $
    2,735
    
    
    $
    
    
    
    $
    
    
    
    $
    19,441Commitments to
extend credit
    
    
    189,651
    
    
    
    42,381
    
    
    
    24,130
    
    
    
    15,803
    
    
    
    271,965Total
    
    $
    206,357
    
    
    $
    45,116
    
    
    $
    24,130
    
    
    $
    15,803
    
    
    $
    291,406
 41




---



##### Table of Contents



(1)
    
    Excludes interest.(2)
    
    Includes interest on both fixed and variable-rate obligations. Interest was calculated
using a weighted average yield based on the type of time deposit at December 31, 2007. The
contractual amounts to be paid on variable-rate obligations are affected by changes in
market interest rates. Future changes in market interest rates could have a material
impact on the contractual amounts to be paid.(3)
    
    Includes interest on both fixed and variable-rate FHLB advances. The interest
associated with variable-rate obligations is based upon interest rates in effect at
December 31, 2007. The contractual amounts to be paid on variable-rate obligations are
affected by changes in market interest rates. Future changes in market interest rates
could have a material impact on the contractual amounts to be paid.(4)
    
    Purchase obligations include capital expenditures as we continue to enhance our network
to accommodate expansion and growth.    Loan and Investment Maturities.
 At December 31, 2007CommercialOne- to
    
    
    and
    
    
    
    
    
    
    Home EquityFour-Family
    
    
    Multi-Family
    
    
    Residential
    
    
    and Lines
    
    
    
    
    
    
    
    
    
    
    TotalReal estate
    
    
    Real estate
    
    
    Construction
    
    
    of Credit
    
    
    Commercial
    
    
    Consumer
    
    
    LoansAmounts due in:One year or less
    
    $
    5,120
    
    
    $
    127,192
    
    
    $
    40,781
    
    
    $
    6,800
    
    
    $
    156,277
    
    
    $
    1,838
    
    
    $
    338,008One year to five years
    
    
    1,557
    
    
    
    216,192
    
    
    
    4,486
    
    
    
    70,041
    
    
    
    130,164
    
    
    
    22,953
    
    
    
    445,393More than five years
    
    
    465,653
    
    
    
    89,991
    
    
    
    58,558
    
    
    
    58,153
    
    
    
    21,287
    
    
    
    62,437
    
    
    
    756,079Total amount due
    
    $
    472,330
    
    
    $
    433,375
    
    
    $
    103,825
    
    
    $
    134,994
    
    
    $
    307,728
    
    
    $
    87,228
    
    
    $
    1,539,480
  42




---



##### Table of Contents



Due After December 31, 2007Fixed
    
    
    Adjustable
    
    
    TotalReal estate loans:One- to four-family
    
    $
    72,941
    
    
    $
    399,389
    
    
    $
    472,330Commercial and multi-family
    
    
    418,019
    
    
    
    15,356
    
    
    
    433,375Residential construction
    
    
    45,993
    
    
    
    57,832
    
    
    
    103,825Home equity and lines of credit
    
    
    81,853
    
    
    
    53,141
    
    
    
    134,994Total real estate loans
    
    
    618,806
    
    
    
    525,718
    
    
    
    1,144,524Commercial loans
    
    
    296,123
    
    
    
    11,605
    
    
    
    307,728Consumer loans
    
    
    87,228
    
    
    
    
    
    
    
    87,228Total loans
    
    $
    1,002,157
    
    
    $
    537,323
    
    
    $
    1,539,480
  At December 31, 2007Due within
    
    
    Due in One Year
    
    
    Due in Five YearsOne Year
    
    
    to Five Years
    
    
    to Ten YearsWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedFair
    
    
    Average
    
    
    Fair
    
    
    Average
    
    
    Fair
    
    
    AverageValue
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    YieldU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    9,877
    
    
    
    4.06
    %
    
    $
    525
    
    
    
    4.88
    %
    
    $
    395
    
    
    
    4.60
    %Obligations of state and political subdivisions
    
    
    2,338
    
    
    
    4.03
    %
    
    
    17,123
    
    
    
    4.04
    %
    
    
    6,240
    
    
    
    4.57
    %Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total debt securities
    
    
    12,215
    
    
    
    4.05
    %
    
    
    17,648
    
    
    
    4.06
    %
    
    
    6,635
    
    
    
    4.57
    %Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total securities available for sale
at fair value
    
    $
    12,215
    
    
    
    4.05
    %
    
    $
    17,648
    
    
    
    4.06
    %
    
    $
    6,635
    
    
    
    4.57
    %
 43




---



##### Table of Contents



[Continued from above table, first column(s) repeated]
 At December 31, 2007Due in
    
    
    Mortgage-backedMore than Ten Years
    
    
    and Equity
    
    
    TotalWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedFair
    
    
    Average
    
    
    Fair
    
    
    Fair
    
    
    AverageValue
    
    
    Yield
    
    
    Value
    
    
    Value
    
    
    YieldU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,797
    
    
    
    4.12
    %Obligations of state and political subdivisions
    
    $
    4,065
    
    
    
    4.78
    %
    
    
    
    
    
    
    29,766
    
    
    
    4.25
    %Corporate debt securities
    
    
    79,201
    
    
    
    5.86
    %
    
    
    
    
    
    
    79,201
    
    
    
    5.86
    %Total debt securities
    
    
    83,266
    
    
    
    5.81
    %
    
    
    
    
    
    
    119,764
    
    
    
    5.30
    %Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    $
    7,507
    
    
    
    7,507
    
    
    
    6.16
    %Equity securities
    
    
    
    
    
    
    
    
    
    
    3,250
    
    
    
    3,250
    
    
    
    Total securities available for sale
at fair value
    
    $
    83,266
    
    
    
    5.81
    %
    
    $
    10,757
    
    
    $
    130,521
    
    
    
    5.22
    %
  Deposit and Financing Activities
  Three months or less
    
    $
    146,242Over 3 through 6 months
    
    
    63,943Over 6 through 12 months
    
    
    74,095Over 12 months
    
    
    118,965Total
    
    $
    403,245
  44




---



##### Table of Contents



Year endedDecember 31,2007
    
    2006
    
    2005FHLB advancesAverage balance outstanding
    
    $
    390,926
    
    
    $
    339,320
    
    
    $
    284,449Maximum amount outstanding at any month-end during the period
    
    
    440,277
    
    
    
    358,299
    
    
    
    346,500Balance outstanding at end of period
    
    
    384,541
    
    
    
    348,914
    
    
    
    346,500Weighted average interest rate during the period
    
    
    4.93
    %
    
    
    4.84
    %
    
    
    4.54
    %Weighted average interest rate at end of period
    
    
    4.84
    %
    
    
    4.82
    %
    
    
    4.50
    %Federal Funds PurchasedAverage balance outstanding
    
    $
    33,772
    
    
    $
    64,404
    
    
    $
    39,574Maximum amount outstanding at any month-end during the period
    
    
    67,224
    
    
    
    107,531
    
    
    
    73,955Balance outstanding at end of period
    
    
    42,564
    
    
    
    51,095
    
    
    
    52,013Weighted average interest rate during the period
    
    
    5.63
    %
    
    
    5.35
    %
    
    
    3.61
    %Weighted average interest rate at end of period
    
    
    4.00
    %
    
    
    5.04
    %
    
    
    4.32
    %
     
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  45




---



##### Table of Contents




    
    The shape of the yield curve;
    
    The pricing characteristics of and pricing decisions regarding loans based on previous
rates charged by the Company;
    
    Changes in deposits and borrowings based on previous rates charged by the Company and
other competitive conditions;
    
    Reinvestments of cash flows from assets and liabilities based on current market interest
rates;
    
    The lack of any changes in the mix of assets and liabilities on the balance sheet;
    
    The degree to which certain assets and liabilities with similar maturities or periods to
repricing react to changes in market interest rates based on particular characteristics of
those assets and liabilities;
    
    Expected prepayment rates on loans and investments based on industry standards and the
current interest rate environment;
    
    Certificates of deposit and other deposit flows based on expected maturity dates and
    
    Expected growth based on the Companys projections.
 46




---



##### Table of Contents



Estimated Change in Annual Net Interest IncomeIncrease/(Decrease) in Market Interest
    
    At December 31, 2007 (Dollars in thousands)Rates in Basis Points (Rate Shock)
    
    Amount
    
    $ Change
    
    % Change200
    
    $
    51,975
    
    
    $
    1,636
    
    
    
    3.25
    %100
    
    
    51,206
    
    
    
    867
    
    
    
    1.72Static
    
    
    50,339
    
    
    
    
    
    
    
    -100
    
    
    49,099
    
    
    
    (1,240
    )
    
    
    (2.46
    )-200
    
    
    47,259
    
    
    
    (3,080
    )
    
    
    (6.12
    )
   
    
    Although certain assets may have similar maturities or repricing characteristics, they
may react in different degrees to changes in interest rates.
    
    The interest rates on certain types of assets and liabilities may fluctuate in advance
of changes in market interest rates, while interest rates on other types of assets and
liabilities may lag behind changes in market interest rates.
    
    Certain assets, such as adjustable-rate and residential mortgage loans, have features
that restrict changes in interest rates on a short-term basis and over the life of the
asset.
    
    In the event of a change in interest rates, expected rates of repayments on loans and
early withdrawals from time deposits could deviate significantly from those assumed in
calculating the table.
    
    If interest rates increased, it is also possible that the increased mortgage payments
required of certain borrowers could result in an increase in delinquencies and defaults.
    
    Changes in interest rates could also affect the volume and profitability of the
Companys lending operations.
   
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
  47




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##### Table of Contents



Internal Control  Integrated Framework
 
 Report of Independent Registered Public Accounting Firm on Effectiveness of Internal Control over
Financial Reporting
 
 Internal Control-Integrated Framework
   48




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##### Table of Contents



49




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##### Table of Contents



December 31,2007
    
    
    2006ASSETSCash and due from depository institutions
    
    $
    20,434
    
    
    $
    24,722Interest-bearing deposits in other depository institutions
    
    
    30
    
    
    
    101Total cash and cash equivalents
    
    
    20,464
    
    
    
    24,823Certificates of Deposit
    
    
    320
    
    
    
    320Securities available for sale, at fair value (Note 3)
    
    
    130,521
    
    
    
    62,149Federal Home Loan Bank stock, at cost
    
    
    22,014
    
    
    
    19,360Loans held for sale
    
    
    4,139
    
    
    
    2,097Loans, less allowance for loan losses of $21,464 and $14,304 (Note 4)
    
    
    1,518,091
    
    
    
    1,582,411Premises and equipment, net (Note 5)
    
    
    43,879
    
    
    
    43,265Goodwill (Note 2)
    
    
    9,814
    
    
    
    9,814Other intangible assets, net of amortization of $2,104 and $1,698 (Note 2)
    
    
    2,296
    
    
    
    2,702Accrued interest receivable and other assets (Notes 6 and 9)
    
    
    52,866
    
    
    
    28,201Total assets
    
    $
    1,804,404
    
    
    $
    1,775,142LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Noninterest-bearing
    
    $
    90,343
    
    
    $
    96,193Interest-bearing (Note 7)
    
    
    1,107,723
    
    
    
    1,090,465Total deposits
    
    
    1,198,066
    
    
    
    1,186,658Federal Home Loan Bank advances (Note 8)
    
    
    384,541
    
    
    
    348,914Federal funds purchased (Note 8)
    
    
    42,564
    
    
    
    51,095Accrued interest payable and other liabilities (Note 10)
    
    
    9,030
    
    
    
    11,161Total liabilities
    
    
    1,634,201
    
    
    
    1,597,828COMMITMENTS AND CONTINGENCIES (Notes 10 and 13)STOCKHOLDERS EQUITY (Notes 11, 12 and 15)Preferred stock, $.01 par value; 1,000,000 shares authorized,
no shares issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 20,000,000 shares authorized, 9,526,761 issued
    
    
    95
    
    
    
    95Additional paid-in capital
    
    
    95,195
    
    
    
    94,818Retained earnings
    
    
    109,144
    
    
    
    110,289Accumulated other comprehensive loss
    
    
    (394
    )
    
    
    (422
    )Treasury stock, at cost (1,584,820 and 1,373,424 shares)
    
    
    (31,438
    )
    
    
    (24,760
    )Deferred compensation obligation (Note 10)
    
    
    3,192
    
    
    
    3,583Unearned compensation  ESOP (Note 10)
    
    
    (5,591
    )
    
    
    (6,289
    )Total stockholders equity
    
    
    170,203
    
    
    
    177,314Total liabilities and stockholders equity
    
    $
    1,804,404
    
    
    $
    1,775,142
  50




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##### Table of Contents



Year EndedDecember 31,2007
    
    
    2006
    
    
    2005INTEREST INCOMELoans, including fees
    
    $
    111,795
    
    
    $
    108,833
    
    
    $
    83,895Federal funds sold and interest bearing deposits
    
    
    126
    
    
    
    124
    
    
    
    245Certificates of Deposit
    
    
    15
    
    
    
    2
    
    
    
    Securities:Tax-exempt
    
    
    874
    
    
    
    992
    
    
    
    1,304Taxable
    
    
    4,302
    
    
    
    3,320
    
    
    
    3,645Total interest income
    
    
    117,112
    
    
    
    113,271
    
    
    
    89,089INTEREST EXPENSEDeposits
    
    
    43,392
    
    
    
    38,564
    
    
    
    23,182Short-term borrowings
    
    
    1,901
    
    
    
    3,447
    
    
    
    2,007FHLB advances
    
    
    19,277
    
    
    
    16,429
    
    
    
    12,903Total interest expense
    
    
    64,570
    
    
    
    58,440
    
    
    
    38,092NET INTEREST INCOME
    
    
    52,542
    
    
    
    54,831
    
    
    
    50,997PROVISION FOR LOAN LOSSES (Note 4)
    
    
    12,342
    
    
    
    2,805
    
    
    
    2,390NET INTEREST INCOME, after provision for loan losses
    
    
    40,200
    
    
    
    52,026
    
    
    
    48,607NONINTEREST INCOMEService charges and other fees
    
    
    3,499
    
    
    
    2,566
    
    
    
    2,512Mortgage banking activities
    
    
    2,387
    
    
    
    2,143
    
    
    
    2,816Trust fee income
    
    
    1,462
    
    
    
    1,312
    
    
    
    1,239Gain on sale of securities available for sale
    
    
    68
    
    
    
    
    
    
    
    Other
    
    
    (256
    )
    
    
    (11
    )
    
    
    (189
    )Total noninterest income
    
    
    7,160
    
    
    
    6,010
    
    
    
    6,378NONINTEREST EXPENSECompensation, payroll taxes and employee benefits (Note 10)
    
    
    22,723
    
    
    
    23,041
    
    
    
    19,502Office occupancy and equipment
    
    
    9,045
    
    
    
    7,998
    
    
    
    6,561Advertising and business promotion
    
    
    1,472
    
    
    
    1,402
    
    
    
    1,552Stationery, printing and supplies
    
    
    1,309
    
    
    
    1,968
    
    
    
    2,037Data processing
    
    
    85
    
    
    
    708
    
    
    
    1,887Professional fees
    
    
    4,419
    
    
    
    3,779
    
    
    
    4,232Core deposit intangible amortization
    
    
    405
    
    
    
    477
    
    
    
    561Other
    
    
    5,784
    
    
    
    5,057
    
    
    
    5,341Total noninterest expense
    
    
    45,242
    
    
    
    44,430
    
    
    
    41,673INCOME, before federal income tax expense
    
    
    2,118
    
    
    
    13,606
    
    
    
    13,312Federal income tax expense (Note 9)
    
    
    248
    
    
    
    4,504
    
    
    
    4,278NET INCOME
    
    $
    1,870
    
    
    $
    9,102
    
    
    $
    9,034EARNINGS PER SHARE, BASIC
    
    $
    0.24
    
    
    $
    1.14
    
    
    $
    1.14EARNINGS PER SHARE, DILUTED
    
    $
    0.24
    
    
    $
    1.14
    
    
    $
    1.14
  51




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##### Table of Contents



AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Deferred
    
    
    UnearnedCommon
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    Compensation
    
    
    Compensation -Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    Obligation
    
    
    ESOP
    
    
    TotalBALANCE, December 31, 2004
    
    $
    95
    
    
    $
    93,409
    
    
    $
    98,068
    
    
    $
    (621
    )
    
    $
    (23,004
    )
    
    $
    2,632
    
    
    $
    (7,685
    )
    
    $
    162,894Allocation of ESOP shares
    
    
    
    
    
    
    430
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    698
    
    
    
    1,128Exercise of stock options
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    121
    
    
    
    
    
    
    
    
    
    
    
    130Deferred compensation and
stock awards earned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    113Purchase of treasury stock
(85,670 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,883
    )
    
    
    
    
    
    
    
    
    
    
    (1,883
    )Deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    479
    
    
    
    
    
    
    
    479Dividends paid ($0.36 per share)
    
    
    
    
    
    
    
    
    
    
    (3,048
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,048
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    9,034
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,034Change in net unrealized
loss on securities
available for sale, net of tax
effect of $(143)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (277
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (277
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,757BALANCE, December 31, 2005
    
    
    95
    
    
    
    93,848
    
    
    
    104,054
    
    
    
    (898
    )
    
    
    (24,653
    )
    
    
    3,111
    
    
    
    (6,987
    )
    
    
    168,570Allocation of ESOP shares
    
    
    
    
    
    
    696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    698
    
    
    
    1,394Exercise of stock options
    
    
    
    
    
    
    274
    
    
    
    
    
    
    
    
    
    
    
    1,298
    
    
    
    
    
    
    
    
    
    
    
    1,572Deferred compensation and
stock awards earned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    162Purchase of treasury stock
(53,779 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,567
    )
    
    
    
    
    
    
    
    
    
    
    (1,567
    )Deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    472
    
    
    
    
    
    
    
    472Dividends paid ($0.36 per share)
    
    
    
    
    
    
    
    
    
    
    (2,867
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,867
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    9,102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,102Change in net unrealized
loss on securities
available for sale, net of tax
effect of $256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    476
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    476Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,578BALANCE, December 31, 2006
    
    
    95
    
    
    
    94,818
    
    
    
    110,289
    
    
    
    (422
    )
    
    
    (24,760
    )
    
    
    3,583
    
    
    
    (6,289
    )
    
    
    177,314Allocation of ESOP shares
    
    
    
    
    
    
    359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    698
    
    
    
    1,057Exercise of stock options
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    118Deferred compensation and
stock awards earned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    856
    
    
    
    
    
    
    
    
    
    
    
    856Purchase of treasury stock
(392,546 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,634
    )
    
    
    
    
    
    
    
    
    
    
    (7,634
    )Deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (391
    )
    
    
    
    
    
    
    (391
    )Dividends paid ($0.36 per share)
    
    
    
    
    
    
    
    
    
    
    (3,015
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,015
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    1,870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,870Change in net unrealized
loss on securities
available for sale, net of tax
effect of $14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,898BALANCE, December 31, 2007
    
    $
    95
    
    
    $
    95,195
    
    
    $
    109,144
    
    
    $
    (394
    )
    
    $
    (31,438
    )
    
    $
    3,192
    
    
    $
    (5,591
    )
    
    $
    170,203
  52




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##### Table of Contents



Year EndedDecember 31,2007
    
    
    2006
    
    
    2005OPERATING ACTIVITIESNet income
    
    $
    1,870
    
    
    $
    9,102
    
    
    $
    9,034Adjustments to reconcile net income to net cash provided by operating activities:Provision (benefit) for deferred income taxes
    
    
    (509
    )
    
    
    132
    
    
    
    1,392Provision for loan losses
    
    
    12,342
    
    
    
    2,805
    
    
    
    2,390Deferred compensation and ESOP
    
    
    1,522
    
    
    
    2,028
    
    
    
    1,720Depreciation
    
    
    3,322
    
    
    
    2,859
    
    
    
    2,355Core deposit intangible amortization
    
    
    405
    
    
    
    477
    
    
    
    561Amortization of discounts on securities
    
    
    377
    
    
    
    452
    
    
    
    691Proceeds from sale of mortgage loans held for sale
    
    
    183,082
    
    
    
    115,686
    
    
    
    175,126Origination of mortgage loans held for sale
    
    
    (185,279
    )
    
    
    (115,342
    )
    
    
    (176,484
    )Gain on sale of mortgage loans
    
    
    155
    
    
    
    (315
    )
    
    
    (576
    )Gain on sale of securities available for sale
    
    
    68
    
    
    
    
    
    
    
    (Gain) loss on sale or disposal of premises and equipment
    
    
    (8
    )
    
    
    106
    
    
    
    (59
    )Changes in assets and liabilities, net of acquisition:Increase in accrued interest receivable and other assets
    
    
    (26,108
    )
    
    
    (9,885
    )
    
    
    (6,039
    )Increase in accrued interest payable and other liabilities
    
    
    (2,131
    )
    
    
    166
    
    
    
    1,365Net cash (used in) provided by operating activities
    
    
    (10,892
    )
    
    
    8,271
    
    
    
    11,476LENDING AND INVESTING ACTIVITIESProceeds from maturities of securities available for sale
    
    
    21,056
    
    
    
    28,148
    
    
    
    15,493Proceeds from sale of securities available for sale
    
    
    52,059
    
    
    
    
    
    
    
    95Purchase of securities available for sale
    
    
    (91,049
    )
    
    
    (2,508
    )
    
    
    (10,370
    )Purchase of certificates of deposits
    
    
    
    
    
    
    (319
    )
    
    
    Purchase of Federal Home Loan Bank stock
    
    
    (2,654
    )
    
    
    (2,354
    )
    
    
    (4,164
    )Proceeds from sale of Federal Home Loan Bank stock
    
    
    
    
    
    
    694
    
    
    
    Purchase of Bank Owned Life Insurance
    
    
    (15,371
    )Net increase in loans
    
    
    14,870
    
    
    
    (155,969
    )
    
    
    (234,335
    )Proceeds from sale of other real estate owned, held for sale
    
    
    3,577
    
    
    
    2,124
    
    
    
    286Proceeds from sale of premises and equipment
    
    
    27
    
    
    
    23
    
    
    
    282Purchases of premises and equipment
    
    
    (3,955
    )
    
    
    (10,025
    )
    
    
    (8,126
    )Net cash used in lending and investing activities
    
    
    (21,440
    )
    
    
    (140,186
    )
    
    
    (240,839
    )
 53




---



##### Table of Contents



[Continued from above table]
 Year EndedDecember 31,2007
    
    
    2006
    
    
    2005DEPOSIT AND FINANCING ACTIVITIESNet increase in deposits
    
    
    11,408
    
    
    
    114,463
    
    
    
    139,091Net increase/(decrease) in federal funds purchased
    
    
    (8,531
    )
    
    
    (918
    )
    
    
    6,486Proceeds from exercises of stock options
    
    
    118
    
    
    
    1,572
    
    
    
    130Proceeds from line of credit
    
    
    
    
    
    
    
    
    
    
    1,000Repayment of line of credit
    
    
    
    
    
    
    (3,950
    )
    
    
    (7,050
    )Repayment of FHLB advances
    
    
    (114,314
    )
    
    
    (698,906
    )
    
    
    (153,854
    )Proceeds from FHLB advances
    
    
    149,941
    
    
    
    701,320
    
    
    
    268,145Purchase of treasury stock
    
    
    (7,634
    )
    
    
    (1,567
    )
    
    
    (1,883
    )Payment of dividends
    
    
    (3,015
    )
    
    
    (2,867
    )
    
    
    (3,048
    )Net cash provided by deposit and financing activities
    
    $
    27,973
    
    
    $
    109,147
    
    
    $
    249,017NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (4,359
    )
    
    
    (22,768
    )
    
    
    19,654CASH AND CASH EQUIVALENTS, beginning of period
    
    
    24,823
    
    
    
    47,591
    
    
    
    27,937CASH AND CASH EQUIVALENTS, end of period
    
    $
    20,464
    
    
    $
    24,823
    
    
    $
    47,591SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for:Interest
    
    $
    63,451
    
    
    $
    56,984
    
    
    $
    36,691Federal income taxes
    
    
    2,950
    
    
    
    3,960
    
    
    
    3,600Supplemental noncash disclosure:Transfers of loans to other real estate owned
    
    
    13,732
    
    
    
    4,211
    
    
    
    1,034Loan
securitization
    
    
    50,840
    
    
    
    
    
    
    
    
     54




---



##### Table of Contents



55




---



##### Table of Contents



56




---



##### Table of Contents



GOODWILL AND OTHER INTANGIBLE ASSETS.
     57




---



##### Table of Contents



Accounting for Stock Issued to Employees Share
Based Payment
 Year EndedDecember 31,2005Net income, as reported
    
    $
    9,034Deduct: Total stock option-based employee compensation
expense determined under fair value-based method,
net of related tax effects
    
    
    (749
    )Pro forma net income
    
    $
    8,285Earnings per shareBasic  as reported
    
    $
    1.14Basic  pro forma
    
    $
    1.05Diluted  as reported
    
    $
    1.14Diluted  pro forma
    
    $
    1.04
  Year EndedDecember 31,2007 (1)
    
    2006 (1)
    
    2005Dividend yield
    
    
    
    
    
    
    

    
    
    
    1.57
    %Expected life
    
    
    
    
    
    
    
    
    
    8 yearsExpected volatility
    
    
    
    
    
    
    
    
    
    
    28.98
    %Risk-free interest rate
    
    
    
    
    
    
    
    
    
    
    4.00
    %
 
 (1)
    
    No stock options were issued during 2007 or 2006.   58




---



##### Table of Contents



Year EndedDecember 31,2007
    
    
    2006
    
    
    2005Net income
    
    $
    1,870
    
    
    $
    9,102
    
    
    $
    9,034Average number of common shares outstanding
used to calculate basic earnings per common share
    
    
    7,805,310
    
    
    
    7,977,415
    
    
    
    7,901,860Effect of dilutive securities
    
    
    1823
    
    
    
    20,146
    
    
    
    38,428Average number of common shares outstanding
used to calculate diluted earnings per
common share
    
    
    7,807,133
    
    
    
    7,997,561
    
    
    
    7,940,288Number of antidilutive stock options excluded from diluted earnings
per share computation
    
    
    13,693
    
    
    
    
    
    
    
    34,696
    Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards
 Accounting for Servicing of Financial Assets- an
amendment of FASB Statement No. 140
 59




---



##### Table of Contents



Fair Value Measurements
 The Fair value Option for Financial
Assets and Financial Liabilities.
 Business
Combinations.
  60




---



##### Table of Contents



December 31, 2007Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    10,777
    
    
    $
    34
    
    
    $
    15
    
    
    $
    10,796Obligations of state and political
subdivisions
    
    
    29,709
    
    
    
    139
    
    
    
    82
    
    
    
    29,766Corporate debt securities
    
    
    78,110
    
    
    
    1,449
    
    
    
    357
    
    
    
    79,202Equity securities available for sale
    
    
    5,002
    
    
    
    
    
    
    
    1,752
    
    
    
    3,250Mortgage-backed securities
    
    
    7,528
    
    
    
    47
    
    
    
    68
    
    
    
    7,507Total securities available for sale
    
    $
    131,126
    
    
    $
    1,669
    
    
    $
    2,274
    
    
    $
    130,521
 December 31, 2006Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    18,318
    
    
    $
    6
    
    
    $
    195
    
    
    $
    18,129Obligations of state and political
subdivisions
    
    
    32,158
    
    
    
    89
    
    
    
    221
    
    
    
    32,026Corporate debt securities
    
    
    4,001
    
    
    
    
    
    
    
    53
    
    
    
    3,948Equity securities available for sale
    
    
    5,000
    
    
    
    
    
    
    
    225
    
    
    
    4,775Mortgage-backed securities
    
    
    3,323
    
    
    
    5
    
    
    
    57
    
    
    
    3,271Total securities available for sale
    
    $
    62,800
    
    
    $
    100
    
    
    $
    751
    
    
    $
    62,149
  61




---



##### Table of Contents



Cost
    
    
    ValueDue within one year or less
    
    $
    12,222
    
    
    $
    12,215Due after one year through five years
    
    
    17,531
    
    
    
    17,648Due after five years through ten years
    
    
    6,634
    
    
    
    6,635Due after ten years
    
    
    82,209
    
    
    
    83,266Total
    
    
    118,596
    
    
    
    119,764Equity securities available for sale
    
    
    5,002
    
    
    
    3,250Mortgage-backed securities
    
    
    7,528
    
    
    
    7,507Total
    
    $
    131,126
    
    
    $
    130,521
   December, 31 2007Less than Twelve Months
    
    
    Over Twelve MonthsUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    
    
    
    $
    
    
    
    $
    15
    
    
    $
    7,014Obligations of state and political
subdivisions
    
    
    63
    
    
    
    4,399
    
    
    
    19
    
    
    
    5,929Corporate debt securities
    
    
    357
    
    
    
    31,993
    
    
    
    
    
    
    
    Equity securities available for sale
    
    
    
    
    
    
    
    
    
    
    1,752
    
    
    
    3,250Mortgage-backed securities
    
    
    45
    
    
    
    3,073
    
    
    
    23
    
    
    
    1,837Total
    
    $
    465
    
    
    $
    39,465
    
    
    $
    1,809
    
    
    $
    18,030
 December, 31 2006Less than Twelve Months
    
    
    Over Twelve MonthsUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueU.S. Treasury securities and obligations of
U.S. government corporations and agencies
    
    $
    3
    
    
    $
    509
    
    
    $
    192
    
    
    $
    16,990Obligations of state and political
subdivisions
    
    
    9
    
    
    
    4,525
    
    
    
    212
    
    
    
    15,413Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    3,947Equity securities available for sale
    
    
    
    
    
    
    
    
    
    
    225
    
    
    
    4,775Mortgage-backed securities
    
    
    
    
    
    
    11
    
    
    
    57
    
    
    
    2,390Total
    
    $
    12
    
    
    $
    5,045
    
    
    $
    739
    
    
    $
    43,515
 62




---



##### Table of Contents



December 31,2007
    
    
    2006Real estate loans:One-to four-family
    
    $
    472,330
    
    
    $
    513,139Commercial and multi-family
    
    
    433,375
    
    
    
    432,009Residential construction
    
    
    103,825
    
    
    
    127,777Home equity and lines of credit
    
    
    134,994
    
    
    
    137,1121,144,524
    
    
    
    1,210,037Commercial loans
    
    
    307,728
    
    
    
    280,005Consumer loans:Vehicles
    
    
    63,352
    
    
    
    83,435Other
    
    
    23,876
    
    
    
    23,82087,228
    
    
    
    107,255Total loans
    
    
    1,539,480
    
    
    
    1,597,297Less:Allowance for loan losses
    
    
    21,464
    
    
    
    14,304Net deferred loan fees
    
    
    (75
    )
    
    
    582Net loans
    
    $
    1,518,091
    
    
    $
    1,582,411
   Year EndedDecember 31,2007
    
    
    2006
    
    
    2005Balance, beginning of period
    
    $
    14,304
    
    
    $
    13,546
    
    
    $
    13,472Allowance from acquisition
    
    
    
    
    
    
    
    
    
    
    Provision for loan losses
    
    
    12,342
    
    
    
    2,805
    
    
    
    2,390Charge-offs
    
    
    (5,886
    )
    
    
    (2,352
    )
    
    
    (2,609
    )Recoveries
    
    
    704
    
    
    
    305
    
    
    
    293Balance, end of period
    
    $
    21,464
    
    
    $
    14,304
    
    
    $
    13,546
 63




---



##### Table of Contents



December 31,2007
    
    
    2006Impaired loans without a valuation allowance
    
    $
    3,467
    
    
    $
    6,280Impaired loans with a valuation allowance
    
    
    29,916
    
    
    
    4,694Total impaired loans
    
    $
    33,383
    
    
    $
    10,974Valuation allowance related to impaired loans
    
    $
    6,790
    
    
    $
    619Total nonperforming loans
    
    $
    54,136
    
    
    $
    25,667
 Year EndedDecember 31,2007
    
    
    2006
    
    
    2005Average investment in impaired loans
    
    $
    4,874
    
    
    $
    7,925
    
    
    $
    7,256Interest income recognized on impaired loans
    
    $
    
    
    
    $
    
    
    
    $
    Interest income recognized on a cash basis
on impaired loans
    
    $
    1,036
    
    
    $
    105
    
    
    $
    36
   December 31,2007
    
    
    2006Land
    
    $
    10,031
    
    
    $
    9,824Office buildings
    
    
    34,310
    
    
    
    33,656Furniture, fixtures, and equipment
    
    
    19,131
    
    
    
    16,387Construction in process
    
    
    1,558
    
    
    
    1,250Total premises and equipment
    
    
    65,030
    
    
    
    61,117Less accumulated depreciation
    
    
    (21,151
    )
    
    
    (17,852
    )Net carrying amount
    
    $
    43,879
    
    
    $
    43,265
  64




---



##### Table of Contents



2008
    
    $
    1,0562009
    
    
    1,0482010
    
    
    8432011
    
    
    7092012
    
    
    640Thereafter
    
    
    1,648Total
    
    $
    5,944
     December 31,2007
    
    2006
    
    2005Annual constant prepayment speed
    
    
    14.11
    %
    
    
    10.98
    %
    
    
    7.87
    %Weighted average life (in months)
    
    
    267
    
    
    
    260
    
    
    
    264Discount rate
    
    
    9.00
    %
    
    
    8.50
    %
    
    
    8.50
    %
  Year EndedDecember 31,2007
    
    
    2006
    
    
    2005Balance, beginning of period
    
    $
    4,281
    
    
    $
    4,118
    
    
    $
    3,938Net mortgage servicing rights acquired in acquisition
    
    
    
    
    
    
    
    
    
    
    Amount capitalized
    
    
    1,781
    
    
    
    1,061
    
    
    
    1,258Amortization
    
    
    1,363
    
    
    
    941
    
    
    
    1,010Change in valuation reserve
    
    
    (30
    )
    
    
    43
    
    
    
    (68
    )Balance, end of period
    
    $
    4,669
    
    
    $
    4,281
    
    
    $
    4,118Valuation allowance:Balance, beginning of period
    
    $
    25
    
    
    
    68
    
    
    
    Additions
    
    
    45
    
    
    $
    
    
    
    
    68Reductions
    
    
    (15
    )
    
    
    (43
    )
    
    
    Balance, end of period
    
    $
    55
    
    
    $
    25
    
    
    $
    68
 65




---



##### Table of Contents



December 31,2007
    
    
    2006Passbook and savings deposits
    
    $
    115,638
    
    
    $
    115,362NOW accounts
    
    
    81,414
    
    
    
    91,587Money market variable rate accounts
    
    
    223,250
    
    
    
    249,889Time deposits
    
    
    687,421
    
    
    
    633,627Total
    
    $
    1,107,723
    
    
    $
    1,090,465
  2008
    
    $
    422,9852009
    
    
    18,0702010
    
    
    47,2642011
    
    
    43,3662012
    
    
    15,405Thereafter
    
    
    140,331Total
    
    
    687,421
      2008
    
    $
    172,3122009
    
    
    124,8502010
    
    
    38,6252011
    
    
    22,1472012
    
    
    10,440Thereafter
    
    
    16,167Total
    
    $
    384,541
  66




---



##### Table of Contents



Year EndedDecember 31,2007
    
    
    2006
    
    
    2005Current tax expense
    
    $
    757
    
    
    $
    4,372
    
    
    $
    2,886Deferred tax expense
    
    
    (509
    )
    
    
    132
    
    
    
    1,392Total income tax expense
    
    $
    248
    
    
    $
    4,504
    
    
    $
    4,278
  Year EndedDecember 31,2007
    
    
    2006
    
    
    2005Income tax at statutory rates
    
    $
    720
    
    
    $
    4,762
    
    
    $
    4,659Increase (decrease) resulting from:Change in contribution carry forward reserve
    
    
    
    
    
    
    (81
    )
    
    
    300Tax-exempt interest expense
    
    
    (361
    )
    
    
    (365
    )
    
    
    (470
    )Other
    
    
    (111
    )
    
    
    188
    
    
    
    (211
    )Total income tax expense
    
    $
    248
    
    
    $
    4,504
    
    
    $
    4,278
 67




---



##### Table of Contents



December 31,2007
    
    
    2006Deferred income tax assets:Allowance for loan losses
    
    $
    7,512
    
    
    $
    4,397Employee benefit obligations
    
    
    2,311
    
    
    
    2,789Net unrealized loss on securities available for sale
    
    
    
    
    
    
    Other
    
    
    541
    
    
    
    505Total deferred income tax assets
    
    
    10,364
    
    
    
    7,691Deferred income tax liabilities:Original issue discount
    
    
    1,394
    
    
    
    545Mortgage Servicing Rights
    
    
    1,634
    
    
    
    1,347Deferred loan fees
    
    
    70
    
    
    
    401Accumulated depreciation
    
    
    2,825
    
    
    
    2,112Net unrealized gain on securities available for sale
    
    
    203
    
    
    
    221Core deposit intangible
    
    
    804
    
    
    
    946Other
    
    
    792
    
    
    
    4Total deferred income tax liabilities
    
    
    7,722
    
    
    
    5,576Deferred income tax asset
    
    
    2,642
    
    
    
    2,115Valuation allowance
    
    
    
    
    
    
    Net deferred income tax asset
    
    $
    2,642
    
    
    $
    2,115
    68




---



##### Table of Contents



Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust
and Invested
  Year EndingDecember 31,
    
    Amount2008
    
    $
    5972009
    
    
    6482010
    
    
    7032011
    
    
    7632012
    
    
    828Thereafter
    
    
    4,072Total
    
    $
    7,611
  69




---



##### Table of Contents



December 31,2007
    
    2006Allocated
    
    
    355,664
    
    
    
    304,855Unallocated
    
    
    406,476
    
    
    
    457,285Total
    
    
    762,140
    
    
    
    762,140
    Year Ended December 31,2007
    
    2006
    
    2005Beginning of period
    
    
    89,626
    
    
    
    87,900
    
    
    
    72,562Granted
    
    
    7,651
    
    
    
    7,000
    
    
    
    27,209Vested
    
    
    (16,974
    )
    
    
    (5,274
    )
    
    
    (5,274
    )Forfeited
    
    
    (1,800
    )
    
    
    
    
    
    
    (6,597
    )Nonvested, end of period
    
    
    78,503
    
    
    
    89,626
    
    
    
    87,900
     70




---



##### Table of Contents



Year Ended December 31,2007
    
    
    2006
    
    
    2005Weighted
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Aggregate
    
    
    
    
    
    
    Average
    
    
    Aggregate
    
    
    
    
    
    
    Average
    
    
    AggregateExercise
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    IntrinsicShares
    
    
    Price
    
    
    Value
    
    
    Shares
    
    
    Price
    
    
    Value
    
    
    Shares
    
    
    Price
    
    
    ValueOutstanding, beginning of period
    
    
    183,272
    
    
    $
    19.77
    
    
    
    
    
    
    
    257,059
    
    
    $
    20.00
    
    
    
    
    
    
    
    186,264
    
    
    $
    20.00Options granted during the period (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,016
    
    
    
    19.96Options forfeited
    
    
    2,975
    
    
    
    21.80
    
    
    
    
    
    
    
    3,756
    
    
    
    20.61
    
    
    
    
    
    
    
    12,991
    
    
    
    20.26Options exercised
    
    
    5,410
    
    
    
    20.38
    
    
    
    
    
    
    
    70,031
    
    
    
    28.39
    
    
    
    
    
    
    
    6,230
    
    
    
    21.84Outstanding, end of period
    
    
    174,887
    
    
    $
    19.71
    
    
    $
    0
    
    
    
    183,272
    
    
    $
    19.77
    
    
    $
    2,010,494
    
    
    
    257,059
    
    
    $
    20.00
    
    
    $
    917,701Options exercisable, end of year
    
    
    174,887
    
    
    $
    19.71
    
    
    $
    0
    
    
    
    180,872
    
    
    $
    19.74
    
    
    $
    1,989,592
    
    
    
    254,059
    
    
    $
    19.97
    
    
    $
    914,612Weighted-average fair value of options granted
during the period
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    6.80
 
 (1)
    
    No stock options were granted during 2007 and 2006.    Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$23.00 - $24.00
    
    
    13,693
    
    
    6.2 years
    
    $
    23.90
    
    
    
    13,693
    
    
    $
    23.90$19.00 - $20.00
    
    
    78,834
    
    
    6.7 years
    
    $
    19.95
    
    
    
    78,834
    
    
    $
    19.95$18.00 - $19.00
    
    
    82,360
    
    
    5.2 years
    
    $
    18.81
    
    
    
    82,360
    
    
    $
    18.81Outstanding, end of year
    
    
    174,887
    
    
    
    
    
    
    $
    19.71
    
    
    
    174,887
    
    
    $
    19.71
     71




---



##### Table of Contents



For CapitalActual
    
    Adequacy Purposes
    
    To Be Well CapitalizedRatio
    
    
    
    
    
    
    
    
    
    Ratio
    
    
    
    
    
    
    
    
    
    RatioAmount
    
    (Percent)
    
    Amount
    
    
    
    
    
    (Percent)
    
    Amount
    
    
    
    
    
    (Percent)December 31, 2007Total Capital to Risk
Weighted Assets:
    
    $
    158,626
    
    
    
    10.5
    %
    
    $
    120,500
    
    
    
    >
    
    
    
    8.0
    %
    
    $
    150,600
    
    
    
    >
    
    
    
    10.0
    %Tier 1 Capital to Risk
Weighted Assets:
    
    
    140,038
    
    
    
    9.3
    %
    
    
    60,300
    
    
    
    >
    
    
    
    4.0
    %
    
    
    90,400
    
    
    
    >
    
    
    
    6.0
    %Tier 1 Capital to
Average Assets:
    
    
    140,038
    
    
    
    7.8
    %
    
    
    71,600
    
    
    
    >
    
    
    
    4.0
    %
    
    
    89,500
    
    
    
    >
    
    
    
    5.0
    %December 31, 2006Total Capital to Risk
Weighted Assets:
    
    $
    161,746
    
    
    
    10.6
    %
    
    $
    121,700
    
    
    
    >
    
    
    
    8.0
    %
    
    $
    152,100
    
    
    
    >
    
    
    
    10.0
    %Tier 1 Capital to Risk
Weighted Assets:
    
    
    147,385
    
    
    
    9.7
    %
    
    
    60,800
    
    
    
    >
    
    
    
    4.0
    %
    
    
    91,300
    
    
    
    >
    
    
    
    6.0
    %Tier 1 Capital to
Average Assets:
    
    
    147,385
    
    
    
    8.4
    %
    
    
    70,424
    
    
    
    >
    
    
    
    4.0
    %
    
    
    88,000
    
    
    
    >
    
    
    
    5.0
    %
        72




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##### Table of Contents



December 31,2007
    
    
    2006Commercial and stand-by letters of credit
    
    $
    19,441
    
    
    $
    8,829Unused lines of credit
    
    
    190,617
    
    
    
    244,690Commitments to originate loans or to refinance
existing loans:Real estate
    
    
    46,190
    
    
    
    49,837Commercial
    
    
    32,598
    
    
    
    44,266Consumer
    
    
    2,560
    
    
    
    4,493Total commitments to extend credit
    
    $
    291,406
    
    
    $
    352,115
       
    
    Companys use of the word Citizens in its Oakland County operations will become
restricted on July 22, 2008, and will be prohibited in Oakland County on and after
October 14, 2008.
    
    All claims for trademark infringement which CBC asserted, or which CBC could have
asserted, against Company in this case with respect to Companys use of the name
Citizens in the Michigan counties of Macomb, Lapeer, St. Clair, Sanilac and Huron will
be dismissed with prejudice.
    
    CBC was not awarded damages, attorney fees, or costs.
  73




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##### Table of Contents



December 31, 2007
    
    
    December 31, 2006Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedValue
    
    
    Fair Value
    
    
    Value
    
    
    Fair ValueFinancial assets:Cash and cash equivalents
    
    $
    20,464
    
    
    $
    20,464
    
    
    $
    24,823
    
    
    $
    24,823Securities available for sale
    
    
    130,521
    
    
    
    130,521
    
    
    
    62,149
    
    
    
    62,149Federal Home Loan Bank stock
    
    
    22,014
    
    
    
    22,014
    
    
    
    19,360
    
    
    
    19,360Loans held for sale
    
    
    4,139
    
    
    
    4,139
    
    
    
    2,097
    
    
    
    2,112Loans
    
    
    1,518,091
    
    
    
    1,539,905
    
    
    
    1,582,411
    
    
    
    1,549,764Accrued interest receivable
    
    
    10,306
    
    
    
    10,306
    
    
    
    10,891
    
    
    
    10,891Financial liabilities:Deposits
    
    
    1,198,066
    
    
    
    1,175,388
    
    
    
    1,186,658
    
    
    
    1,094,859Federal Home Loan Bank advances
    
    
    384,541
    
    
    
    394,468
    
    
    
    348,914
    
    
    
    349,311Federal funds purchased
    
    
    42,564
    
    
    
    42,564
    
    
    
    51,095
    
    
    
    51,095Accrued interest payable
    
    
    4,830
    
    
    
    4,830
    
    
    
    3,711
    
    
    
    3,711
       74




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##### Table of Contents



75




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##### Table of Contents



December 31,2007
    
    
    2006ASSETSCash at subsidiary bank
    
    $
    249
    
    
    $
    9,134Securities available for sale
    
    
    3,250
    
    
    
    4,777Investment in subsidiaries
    
    
    157,580
    
    
    
    159,764Deferred taxes and other assets
    
    
    9500
    
    
    
    4,204Total assets
    
    $
    170,579
    
    
    $
    177,879LIABILITIESBank line of credit
    
    $
    
    
    
    $
    Accrued expenses and other liabilities
    
    
    376
    
    
    
    565Total liabilities
    
    
    376
    
    
    
    565STOCKHOLDERS EQUITY
    
    
    170,203
    
    
    
    177,314TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    170,579
    
    
    $
    177,879
 76




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##### Table of Contents



Year EndedDecember 31,2007
    
    
    2006
    
    
    2005Income:Interest on loans
    
    
    
    
    
    
    
    
    
    $
    362Interest on investments
    
    $
    254
    
    
    $
    1,247
    
    
    
    1,517Dividends from subsidiaries
    
    
    
    
    
    
    
    
    
    
    5,000Other
    
    
    
    
    
    
    42
    
    
    
    Total income
    
    
    254
    
    
    
    1,289
    
    
    
    6,879Expense:Interest on short term borrowings
    
    
    (29
    )
    
    
    (45
    )
    
    
    (466
    )Other
    
    
    (1,473
    )
    
    
    (1,227
    )
    
    
    (1,320
    )Income, before income taxes and equity in
undistributed net income of subsidiaries
    
    
    (1,248
    )
    
    
    17
    
    
    
    5,093Income tax benefit (expense)
    
    
    43
    
    
    
    (329
    )
    
    
    (273
    )Income (loss), before equity in undistributed net
of subsidiaries
    
    
    (1,205
    )
    
    
    (312
    )
    
    
    4,820Equity in undistributed net income (loss) of subsidiaries3,075
    
    
    
    9,414
    
    
    
    4,214Net income
    
    $
    1,870
    
    
    $
    9,102
    
    
    $
    9,034
 77




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##### Table of Contents



Year EndedDecember 31,2007
    
    
    2006
    
    
    2005OPERATING ACTIVITIESNet income
    
    $
    1,870
    
    
    $
    9,102
    
    
    $
    9,034Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Amortization (accretion) of securities
    
    
    
    
    
    
    270
    
    
    
    213Equity in undistributed net income (loss) of subsidiaries
    
    
    3,220
    
    
    
    (11,788
    )
    
    
    (3,788
    )Deferred compensation and ESOP
    
    
    1,522
    
    
    
    2,028
    
    
    
    1,720(Increase) decrease in accrued interest receivable and other assets
    
    
    (5,222
    )
    
    
    (115
    )
    
    
    1,081Increase (decrease) in accrued interest payable and other liabilities
    
    
    256
    
    
    
    (716
    )
    
    
    (403
    )Net cash provided by (used in) operating activities
    
    
    1,646
    
    
    
    (1,219
    )
    
    
    7,857INVESTING ACTIVITIESProceeds from sale or maturity of investments
    
    
    
    
    
    
    16,456
    
    
    
    8,521Purchase of investments
    
    
    
    
    
    
    
    
    
    
    (10,370
    )Net decrease in loans
    
    
    
    
    
    
    
    
    
    
    4,675Net cash provided by (used in) investing activities
    
    
    
    
    
    
    16,456
    
    
    
    2,826FINANCING ACTIVITIESProceeds from exercises of stock options
    
    
    118
    
    
    
    1,572
    
    
    
    130Proceeds from line of credit
    
    
    
    
    
    
    
    
    
    
    1,000Repayment of line of credit
    
    
    
    
    
    
    (3,950
    )
    
    
    (7,050
    )Purchase of treasury stock
    
    
    (7,634
    )
    
    
    (1,567
    )
    
    
    (1,883
    )Payment of dividends
    
    
    (3,015
    )
    
    
    (2,867
    )
    
    
    (3,048
    )Net cash provided by (used in) financing activities
    
    
    (10,531
    )
    
    
    (6,812
    )
    
    
    (10,851
    )NET CHANGE IN CASH AT SUBSIDIARY BANK
    
    
    (8,885
    )
    
    
    8,425
    
    
    
    (168
    )CASH, beginning of period
    
    
    9,134
    
    
    
    709
    
    
    
    877CASH, end of period
    
    $
    249
    
    
    $
    9,134
    
    
    $
    709
 78




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##### Table of Contents



For the Three-month Periods EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2007
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    TotalInterest income
    
    $
    29,586
    
    
    $
    29,547
    
    
    $
    29,501
    
    
    $
    28,478
    
    
    $
    117,112Interest expense
    
    
    15,731
    
    
    
    16,066
    
    
    
    16,391
    
    
    
    16,382
    
    
    
    64,570Net interest income
    
    
    13,855
    
    
    
    13,481
    
    
    
    13,110
    
    
    
    12,096
    
    
    
    52,542Provision for loan losses
    
    
    1,259
    
    
    
    491
    
    
    
    7,556
    
    
    
    3,036
    
    
    
    12,342Noninterest income
    
    
    1,826
    
    
    
    1,989
    
    
    
    2,109
    
    
    
    1,236
    
    
    
    7,160Noninterest expense
    
    
    10,862
    
    
    
    11,854
    
    
    
    11,193
    
    
    
    11,333
    
    
    
    45,242Income (loss), before federal income tax
expense
    
    
    3,560
    
    
    
    3,125
    
    
    
    (3,530
    )
    
    
    (1,037
    )
    
    
    2,118Federal income tax expense (benefit)
    
    
    1,195
    
    
    
    971
    
    
    
    (1,258
    )
    
    
    (660
    )
    
    
    248Net income (loss)
    
    $
    2,365
    
    
    $
    2,154
    
    
    $
    (2,272
    )
    
    $
    (377
    )
    
    $
    1,870Earnings (loss) per share, basic
    
    $
    0.29
    
    
    $
    0.27
    
    
    $
    (0.29
    )
    
    $
    (0.05
    )
    
    $
    0.24Earnings (loss) per share, diluted
    
    $
    0.29
    
    
    $
    0.27
    
    
    $
    (0.29
    )
    
    $
    (0.05
    )
    
    $
    0.24
 For the Three-month Periods EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    TotalInterest income
    
    $
    26,095
    
    
    $
    27,844
    
    
    $
    29,041
    
    
    $
    30,291
    
    
    $
    113,271Interest expense
    
    
    12,764
    
    
    
    14,237
    
    
    
    15,489
    
    
    
    15,950
    
    
    
    58,440Net interest income
    
    
    13,331
    
    
    
    13,607
    
    
    
    13,552
    
    
    
    14,341
    
    
    
    54,831Provision for loan losses
    
    
    870
    
    
    
    710
    
    
    
    605
    
    
    
    620
    
    
    
    2,805Noninterest income
    
    
    1,476
    
    
    
    1,574
    
    
    
    1,486
    
    
    
    1,474
    
    
    
    6,010Noninterest expense
    
    
    10,864
    
    
    
    11,677
    
    
    
    10,901
    
    
    
    10,988
    
    
    
    44,430Income, before federal income tax expense
    
    
    3,073
    
    
    
    2,794
    
    
    
    3,532
    
    
    
    4,207
    
    
    
    13,606Federal income tax expense
    
    
    1,028
    
    
    
    934
    
    
    
    1,204
    
    
    
    1,338
    
    
    
    4,504Net income
    
    $
    2,045
    
    
    $
    1,860
    
    
    $
    2,328
    
    
    $
    2,869
    
    
    $
    9,102Earnings per share, basic
    
    $
    0.26
    
    
    $
    0.24
    
    
    $
    0.29
    
    
    $
    0.36
    
    
    $
    1.14Earnings per share, diluted
    
    $
    0.26
    
    
    $
    0.23
    
    
    $
    0.29
    
    
    $
    0.36
    
    
    $
    1.14
 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
 79




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##### Table of Contents



Managements Report on Internal Control Over Financial Reporting
 Internal Control  Integrated Framework Internal Control Integrated Framework,
   
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   
 ITEM 11. EXECUTIVE COMPENSATION
  80




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##### Table of Contents



ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  Equity Compensation Plan Information
 Number of securitiesremaining availableNumber of securities
    
    
    
    
    
    
    for future issuanceto be issued upon
    
    
    Weighted-average
    
    
    under equityexercise of outstanding
    
    
    exercise price of
    
    
    compensation plansoptions, warrants,
    
    
    outstanding options,
    
    
    (excluding securitiesand rights
    
    
    warrants and rights
    
    
    in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    174,887
    
    
    $
    19.71
    
    
    
    1,209,867Total
    
    
    174,887
    
    
    $
    19.71
    
    
    
    1,209,867
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 81




---



##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  (1) Financial Statements
 Pages in Form 10-KREPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRMS
    
    page 47CONSOLIDATED FINANCIAL STATEMENTSBalance Sheets
    
    page 50Statements of Income
    
    page 51Statements of Changes in Stockholders Equity
    
    page 52Statements of Cash Flows
    
    page 53Notes to Consolidated Financial Statements
    
    page 54-79
 Financial Statement Schedules
   Exhibits
 3.1
    
    Certificate of Incorporation of Citizens First Bancorp, Inc. (1)3.2
    
    Bylaws of Citizens First Bancorp, Inc. (1)4.0
    
    Draft Stock Certificate of Citizens First Bancorp, Inc. (1)10.1
    
    Form of Citizens First Savings Bank Employee Severance Compensation Plan (1)10.2
    
    Form of Citizens First Savings Bank Supplemental Executive Retirement Plan (1)10.3
    
    Form of Citizens First Savings Bank Director's Deferred Fee Agreement (1)10.4
    
    Employment Agreement between Citizens First Bancorp, Inc. and Marshall J. Campbell (5)10.5
    
    Change in Control Agreement between Citizens First Savings Bank and Randy J. Cutler (2)10.6
    
    Change in Control Agreement between Citizens First Savings Bank and Timothy D. Regan (2)10.7
    
    Change in Control Agreement between Citizens First Savings Bank and J. Stephen Armstrong (2)10.8
    
    Change in Control Agreement between Citizens First Savings Bank and Douglas E. Brandewie (6)10.9
    
    Change in Control Agreement between Citizens First Savings Bank and William G. Oldford, Jr. (6)10.10
    
    Change in Control Agreement between Citizens First Savings Bank and Richard Stafford (6)10.11
    
    Citizens First Bancorp, Inc. 2001 Stock-Based Incentive Plan (3)10.12
    
    Amended and Restated Management Restricted Stock Purchase Plan (4)10.13
    
    Amended and Restated Executive Stock Ownership Plan (4)21.0
    
    Subsidiary Information is incorporated herein by reference to Part I, Item 1, Business - Subsidiary Activities23.1
    
    Consent of BDO Seidman, LLP31.1
    
    Rule 13a-14(a) Certifications of Chief Executive Officer31.2
    
    Rule 13a-14(a) Certifications of Chief Financial Officer32.1
    
    Section 1350 Certifications of Chief Executive Officer32.2
    
    Section 1350 Certifications of Chief Financial Officer
 
 (1)
    
    Incorporated by reference into this document from the Exhibits to the Form S-1, Registration
Statement and amendments thereto, initially filed with the Securities and Exchange Commission
on November 3, 2000, Registration No. 333-49234.(2)
    
    Incorporated by reference into this document from the Exhibits to the Form 10-Q as filed with
the Securities and Exchange Commission on August 14, 2001 (Registration No. 0-32041).(3)
    
    Incorporated by reference into this document from the Appendix to the Proxy Statement as
filed with the Securities and Exchange Commission on September 30, 2001.(4)
    
    Incorporated by reference into this document from the Appendix to the Proxy Statement as
filed with the Securities and Exchange Commission on April 21, 2003.(5)
    
    Incorporated by reference into this document from the Exhibits to Registrants Form 10-K
filed with the Securities and Exchange Commission on May 10, 2007 (Registration No. 0-32041)(6)
    
    Incorporated by reference into this document from the Exhibits to the Form 10-K as filed with
the Securities and Exchange Commission on March 23, 2006 (Registration No. 0-32041).
 82




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##### Table of Contents



SIGNATURES
  Citizens First Bancorp, Inc.Date:
March 17, 2008
    By:
    /s/ Marshall J. CampbellMarshall J. CampbellChairman of the Board,

President and Chief

Executive Officer  /s/ Marshall J. Campbell
    
    Chairman of the Board, PresidentMarshall J. Campbell
    
    and Chief Executive Officer(principal executive officer)
    
    March 17, 2008/s/ Timothy D. Regan
    
    Secretary, TreasurerTimothy D. Regan
    
    (principal accounting and financialofficer)
    
    March 17, 2008/s/ Ronald W. CooleyRonald W. Cooley
    
    Director
    
    March 17, 2008/s/ Gerald BouchardGerald Bouchard
    
    Director
    
    March 17, 2008/s/ Walid DemashkiehWalid Demashkieh
    
    Director
    
    March 17, 2008/s/ Janice U. WhippleJanice U. Whipple
    
    Director
    
    March 17, 2008/s/ Daniel G Lockwood, CPADaniel G. Lockwood, CPA
    
    Director
    
    March 17, 2008/s/ Bethany A. BelangerBethany A. Belanger
    
    Director
    
    March 17, 2008
 83




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##### Table of Contents



Exhibit Index
 3.1
    
    Certificate of Incorporation of the Citizens First Bancorp, Inc. (1)3.2
    
    Bylaws of the Citizens First Bancorp, Inc. (1)4.0
    
    Draft Stock Certificate of the Citizens First Bancorp, Inc. (1)10.1
    
    Form of the Citizens First Savings Bank Employee Severance Compensation Plan (1)10.2
    
    Form of the Citizens First Savings Bank Supplemental Executive Retirement Plan (1)10.3
    
    Form of the Citizens First Savings Bank Director's Deferred Fee Agreement (1)10.4
    
    Employment Agreement between the
Citizens First Bancorp, Inc. and Marshall J. Campbell (5)10.5
    
    Change in Control Agreement between
the Citizens First Savings Bank and Randy J. Cutler (2)10.6
    
    Change in Control Agreement between
the Citizens First Savings Bank and Timothy D. Regan (2)10.7
    
    Change in Control Agreement between
the Citizens First Savings Bank and J. Stephen Armstrong (2)10.8
    
    Change in Control Agreement between
the Citizens First Savings Bank and Douglas E. Brandewie (6)10.9
    
    Change in Control Agreement between
Citizens First Savings Bank and William G. Oldford, Jr. (6)10.10
    
    Change in Control Agreement between
Citizens First Savings Bank and  Richard Stafford (6)10.11
    
    Citizens First Bancorp, Inc. 2001 Stock-Based Incentive Plan (3)10.12
    
    Amended and Restated Management Restricted Stock Purchase Plan (4)10.13
    
    Amended and Restated Executive Stock Ownership Plan (4)21.0
    
    Subsidiary Information is incorporated herein by reference to Part I,Item 1, "Business - Subsidiary Activities"23.1
    
    Consent of BDO Seidman, LLP31.1
    
    Rule 13a-14(a) Certifications of Chief Executive Officer31.2
    
    Rule 13a-14(a) Certifications of Chief Financial Officer32.1
    
    Section 1350 Certifications of Chief Executive Officer32.2
    
    Section 1350 Certifications of Chief Financial Officer
 
 (1)
    
    Incorporated by reference into this document from the Exhibits to the Form S-1, Registration
Statement and amendments thereto, initially filed with the Securities and Exchange Commission
on November 3, 2000, Registration No. 333-49234.(2)
    
    Incorporated by reference into this document from the Exhibits to the Form 10-Q as filed with
the Securities and Exchange Commission on August 14, 2001 (Registration No. 0-32041).(3)
    
    Incorporated by reference into this document from the Appendix to the Proxy Statement as
filed with the Securities and Exchange Commission on September 30, 2001.(4)
    
    Incorporated by reference into this document from the Appendix to the Proxy Statement as
filed with the Securities and Exchange Commission on April 21, 2003.(5)
    
    Incorporated by reference into this document from the Exhibits to Registrants Form 10-K
filed with the Securities and Exchange Commission on May 10, 2007 (Registration No. 0-32041)(6)
    
    Incorporated by reference into this document from the Exhibits to the Form 10-K as filed with
the Securities and Exchange Commission on March 23, 2006 (Registration No. 0-32041).
 84